Hacker News Reader

Comment by lpolovets | Hacker News Reader

The salaries here are higher, but the housing prices are much, much higher. I live in Redwood City, which is a decent-but-not-amazing part of the Bay Area. A 1500-sq ft home is about $1.7m here. In Palo Alto, it would be closer to $2.5m-$3m. In a place like Portland, that same home would be $400k. The problem is that salaries here are 100% higher, but house prices are 300%-600% higher. And housing is most people's biggest expense. It's very tempting to move to a place like Portland, and either take a lower paying job, work remotely for an SF job, or even fly in for an SF job for a few days every week.

All of this feels completely untenable and unsustainable, and yet it sustains because there are enough affluent people that want to live here that their demand outstrips supply, and local city governments are criminally conservative when it comes to building more housing.

View on HN

You gotta do what every other long-term San Francisco resident did: Get a nice 2-3BR rent controlled apartment, then slowly become the sole tenant as roommates come and go. In 5-7 years time, the place will be way below market rate and you'll be ready to start a family. Then just shake your head and shrug your shoulders when newcomers complain how expensive it is.

*Yes, there's some sarcasm in there, but this is what San Franciscans have done since the 70's.

I like to comment on how my next door neighbor's rent (here in SF) is under $300/month. He moved when in many years ago when the rent was $85/month. I pay just over $1600 for the same 250 square foot layout.

I’m in this boat - 6 years in sf and my rent already seems so cheap by comparison. Any move I make now is. Move out the Bay Area. It is a pretty nasty choice. We have a nice house, but we either have to upend our life or stay put. Our rent is not cheap, but with the way rents have gone up, we can’t even downsize to a 2 bedroom unit to save money. So, we have 2 tenants in 3 bedrooms and rent control.

Until the landlord exploits some obscure rent control loophole where they can evict the entire building and start over at market value. I think they have to do major construction or demolish some % of the place. Can anyone confirm?

I find it better to look at rentals than house prices, because house prices are being driven up by people who really, really want to own (due to few sellers). (More at https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...)

Your 1500 sq home probably would rent for about $4300 a month in Redwood City (https://www.zillow.com/redwood-city-ca/home-values/). That home would probably rent for about $1900 in Portland (https://www.zillow.com/portland-metro-or_r394998/home-values...)

A $30k/year rent difference requires ~$48k more income to cover (at 40% marginal tax rates). My guess is that the 100% salary jump is more than enough to cover the housing increase (probably handles all COL difference), making SF more favorable, especially if you don't want a very large home or are quite senior.

Except then you're always at the mercy of a landlord who can raise your rental rates, and you won't be building any equity. There's no rent control on the Peninsula. I know people who have gotten a $600/month rent increase and been totally screwed. Whereas owners benefit from Prop 13 which is basically rent control for owners- their property taxes never go up.

Not building equity == ploughing piles of money into better investments than a house...

I agree and disagree. In most areas, I think it's true that other asset classes outperform real estate. One challenge in the Bay Area is that housing has been going up faster than non-housing investments. For example, I just checked the house next door to me on Trulia, and it's up 6X in 20 years. That's an almost 10% annual rate of return. So in fact if you don't own a house, you're probably falling even further behind from your house-owning peers. At least in this area.

So you're saying if you buy a house, you will be making incredible gains. If not, then you will be making gains at least as good as everywhere else. Sounds like win-win to me.

There are very few assets that return 10% annually for 20 years. It's impossible to know what will happen in the next 20 years, but owning a house in the Bay Area for the last few decades would have been a much better investment than paying a little less for rent and investing what's left over.

6x in 20years is lower return than stock shares in most of the employers that have been driving up housing prices (for obvious reasons -- those companies' growth are funding the housing price gains)

Not sure why you are being downvoted, but this is correct. The returns on VITAX far outperformed leveraged housing. (see 3rd final thought at https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...)

Besides, 10% is about the long-term S&P 500 average return.

Not to mention that by owning you have to pay property tax, which should be considered when comparing investment returns.

It is normally a Bad Idea to invest heavily in your employer due to the Putting All Your Eggs In One Basket principle. If anything happens, you lose your job and investments.

But you can’t live in your other investments.

You're under-stating the return. Unlike other investments you can leverage the house with a mortgage. Assuming you put only 20% down you're making 50%/year gains.

Except every year you are paying about 6% of the purchase price in principal and interest and property tax (plus maintenance and water), so the math isn't quite that simple.

But you are putting down only your savings in other investments , much lower amount.

However, the house is leveraged. At 20% down any gains in house equity represent five times the same percentage gain in an unleveraged investment. If you put 200k down on a 1m house and the house appreciates to 1.1m, then that 10% gain in equity is a 50% gain on what you actually invested. Of course losses will be magnified too.

There is rent control in East Palo Alto. However, every other city on the Peninsula does not have rent control.

Mountain View, too: https://www.mountainview.gov/depts/comdev/preservation/rents...

You are correct. Mountain View recently added rent control.

Relatively low interest rates (locked in for 30 years), tax deductible mortgage interest (some) and prop13 make ownership still economically beneficial even if you don't assume massive appreciation. This assumes you stay at least 5 years due to large transaction costs. Obviously you have expenses associated with ownership and some opportunity costs due to not investing the down payment but from all the math I've done if you want to stay and you can swing a 1.5M house it makes sense to buy.

> Relatively low interest rates (locked in for 30 years), tax deductible mortgage interest (some) and prop13 make ownership still economically beneficial even if you don't assume massive appreciation.

That's not true in many parts of the Bay Area. See linked post above: https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...

Good point, it certainly depends on how you do your model. Accurately predicting the housing market appreciation and your investment rate of return is challenging. Also, renting vs. buying have different risks (monetary and otherwise).

Interest is no longer tax deductible above 750K loan (1 million if grandfathered)

Rents are driven up by people who really, really want to rent.

> The salaries here are higher, but the housing prices are much, much higher.

I'm Australian so YMMV, but six months ago I took a 25% pay cut to move out of Sydney to somewhere with lower housing costs and a shorter commute. I'm never going back.

I co-run a small co-working space and we've had a couple of tenants join who were relocating from the East coast of Australia to Adelaide for similar reasons.

Haha Adelaide is for religious dorks! You should definitely live somewhere cool like Melbourne and Sydney [1]

[1] Please don't mention Adelaide publicly. Coopers beer, the fringe festival, great weather, great wine, housing for families that's close to town, and beaches where you can be the only person for miles. I want to buy a house there and demand will drive pricing up.

Where did you move to if you don't mind me asking?

Newcastle. It's taken nearly 20 years but it's starting to recover from the post-BHP doldrums.

Yes, it has changed a lot since those days... I visited some friends there about a year ago and was very pleasantly surprised.

Glad to hear it is working out for you :-)

Do you work in IT?

Sydney and Melbourne seem to be the only Australian cities with a substantial tech presence.

If you can create new tech in Australia at all, with the lack of investment opportunities and government support, you can probably do it from Adelaide. If you're into fixing existing stuff then yes stick to the big cities.

Same problem in NYC. Fortunately, we have relatively cheaper and desirable suburbs within 60 - 90 minutes upstate, on Long Island, northern NJ, and southern CT. (Hence the expression "tri-state area"). People commuting to higher paying jobs in the city are a significant - probably crucial - part of the economy of those places, and what keeps the housing prices rising, even though they are affordable for people making a commute time / space trade-off. I'm not familiar with the Bay Area. You don't have some equivalent communities?

The housing prices are increasing all throughout the bay area of course. Unlike NY however there are not great train connections to Silicon Valley; there is BART to SF and nice areas around Bart stations have also seen substantial appreciation.

There is a perfectly feasible train connection to Silicon Valley (at least the western part of it). Trains are standing-room-only daily.

The area around almost every Caltrain stop has already seen significant appreciation, of course.

Coming back to the Bay Area after a decade in London, the difference is shocking, and it feels difficult to call the Caltrain "perfectly feasible". Coming into on a Sunday afternoon, I had to transfer at Millbrae. It was almost a 2-hour wait for the next train, with literally zero amenities at the station. Just multistory parking lots, surrounded by surface parking lots, surrounded by 8-lane roads, surrounded by freeways.

Utterly dysfunctional and dismal. I don't doubt that the land is appreciating there, but why can't it be put to better uses?

It's commuter rail, not an alternative for tourists.

I agree that the Millbrae station is terrible! That's due to BART - most of the other stations up and down that line are in the downtowns of Burlingame, San Mateo, Redwood City, Menlo Park, Palo Alto, Mountain View, etc. All of those towns predate the automobile, and are certainly rail-friendly.

Coincidentally, all of those rail-friendly suburbs I mentioned are the NIMBY anti-density insane-housing-price places lamented elsewhere in the thread!

Are you suggesting no one goes to work at the weekend, or that no one who goes during the week goes to the city at the weekend?

Outside the USA, public transport may run a little less often on a Saturday or Sunday, but it's still useful for people to use for shopping, going out and so on.

For example, in Copenhagen the trains run every 10 minutes rather than five, and the rural trains are every 60 minutes on a Sunday, rather than 20. I think the metro is the same at the weekend as during the week.

Certainly not suggesting that - in fact, I ride this particular rail on the weekend every few months. It's never crowded on the weekend, except before and after baseball games.

It runs roughly every hour (with a few additional express trains) on the weekend, very similar to the rural trains you describe in Denmark.

My point is that you can't just show up at a commuter rail station and complain that you have to wait a while at a bare-bones platform. It's built for people who take it at the same time every day, commonly driving to the station.

The CalTrain seems to run about once an hour at the weekend, but there are gaps — there's no train at 13:XX, 16:XX, 19:XX or 22:XX. It's just 30km from San Francisco, and Milbrae has a population of about 21,000.

The "Lokaltoger" on Zealand run every half hour on Saturdays, and every hour on Sundays, with the stations at 40-70km from Copenhagen. The settlements are mostly around 1-2 thousand people, although here we can include children and the elderly as potential users as it's not expected to drive to the stations.

If I use public transport every day during the week, then when going to similar places at the weekend I will certainly complain if the trains are infrequent.

http://www.caltrain.com/schedules/weekend-timetable.html

http://www.lokaltog.dk/media/1179/920r-frederiksvaerkbanen.p...

Is there any reason it's so empty? Wouldn't a small coffee shop make any money?

There are some bare stations in the UK. I'd be interested to know if any of these are used for transfers / changes.

Stonehouse is pretty minimal, but I think any changes would be made at Cheltenham or Gloucester or Swindon.

Yeah I should have mentioned Caltrain but it really just travels from one expensive place to another.

I'd say far from perfectly feasible. I looked at the prospect of commuting from South Bay into San Francisco. In isolation a "Baby Bullet" sounds feasible, (45-60 mins), but there are only so many of those, and they of course don't drop you at the door of your office. So the end result looked something like showing up to the station at 7 AM to get on a standing room only train, then needing to cobble together the rest of your commute via bike/rent-a-scooter/Uber whatever to show up anywhere reasonably close to 9. Then doing the reverse on the way back!

We do. I used to live in Pleasant Hill which is east of SF and about an hour by BART to SF, and housing is far less expensive.

Now I live in Morgan Hill which is a great place for families. I drive in to SJ, about 45 minutes in rush hour each way. Caltrain is an option as well, although it takes longer. A nice, newer 2k square foot house runs about $1mm so not “cheap”, but 50-70% less expensive than most of the peninsula.

My unscientific opinion is that the Bay Area skews younger (for people on HN who are bummed about housing) and most young people don’t like the ‘burbs. Anything outside the Real Bay Area (bounded on the north by SF, east by Oakland and south by SJ) is out of the running for a lot of people.

Imagine what Manhattan would be like if you didn't have the option of renting in Brooklyn or Queens. That's roughly what the situation in San Francisco is like.

We call ours Berkeley and Oakland. It only works if you commute to San Francisco, but plenty of people do it. (As an amusing sidenote San Francisco was jealous of the NYC merging and tried to annex Oakland: https://www.google.com/amp/s/hoodline.relaymedia.com/amp/201...)

Reality check, a 1500 sqft house sold for $400k will be in an awful school district at least 45mins from downtown. You're probably looking at closer to $600k for anything decent especially if you have kids.

Portland, while way cheaper than the Bay Area, has seen home prices rise significantly in the last few years, likely due to Bay Area Exodus. http://money.cnn.com/2016/02/05/pf/oregon-unaffordable-calif...

> It's very tempting to move to a place like Portland, and either take a lower paying job, ...

OTOH, as long as you can sell your house for at least as much as it cost you, that money's not lost. There's something to be said for a few years' of Silicon Valley salary, then pulling up stakes and moving somewhere more reasonable. Best of all is to draw a Silicon Valley salary while actually living somewhere else, but I'm not supposed to talk about that. ;)

Build more housing where? Belmont? Woodside? Atherton? The Bay itself?

I loved my time in Redwood City, more housing would certainly not make it better.

If you live in a nice house, the idea of a huge apartment complex next door would not be remotely appealing. That's the only way you can "build more" in the vast majority of the City/Peninsula. I don't blame them one bit.

The public transit is the problem. Too many fiefdoms - Amtrak, Caltrain, VTA, ACE, bart, muni. If Bart served all those corridors instead, the South Bay as far as hollister would be reasonable to commute from. Plus the eastern towns.

Reply on news.ycombinator.com