Hacker News Reader

Economists have studied this pretty extensively. What they've found is that every time a city doubles in size, its economic productivity goes up by around 5-7%[1].

This relationship seems to hold across a remarkable range environments. In the ancient times, in modern times, in the Renaissance, in American, in Europe, in Asia, in the first world, in the third world, and so on.

This is what makes bootstrapping a new city so difficult. Let's say your economic metro has 10 million people. even if you manage to coordinate 100 thousand leaving together, the new city will still have nearly 50% lower productivity than the old mega metro.

Density seems to boost productivity by making it easier to quickly spread innovations. Think about Silicon Valley. There are hundreds of tech companies in a single job market. New technologies and approaches. Employees switch companies every six months and bring the best practices to their new firms.

Take those same companies and disperse them across the continental US. Workers don't move firms because relocating is expensive, unpleasant and risky. Instead of bouncing between jobs every six months, people stay "loyal" to their local employer for decades at a time. Every time a new innovation is discovered at one firm, it takes orders of magnitude longer to diffuse across the industry.

Think of the major improvements in software engineering during our lifetime. Things like devOps, test driven development, microservices, rigorous source control, code review, open source, containerization, and the like. Silicon Valley adopted all of these practices years, if not decades, before the average IT department in Tulsa or Jacksonville.

[1]https://www.jstor.org/stable/1885259?seq=1

> decades

Great comment, but... that's a bit of an exaggeration! The rest of us read HN and mailing lists and web sites and whatnot, and technology does tend to spread faster thanks to it, these days.

Good point. Somewhat higher in another study:

> … in contemporary US cities productivity increases by about 11% with each doubling of their population.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3609801/

California, at least Bay Area in particular, has a slightly different problem that is keeping people stuck here.

People can’t live here without both husband and wife working full time. Now to move to a different city or state, both husband and wife needs a job there or the new salary + cost of living must equal the other person quitting their job. That is just a difficult mental model to get over. It will happen, but only at the breaking point

Totally agree. Add in the fact that, if you do move to a lower cost area it is typically a mostly an irreversible step. You'll never save up enough to move back. By the time you change your mind, CA house prices and rent will have risen another 7% yoy, and inventory will be in the gutter because prop 13 discourages people from selling and rent control discourages people from moving. For some, that is not an issue. For me, well, I have lived here almost my whole life. I'd like the option to change my mind.

Also, throwing your kid in a new school, giving up your friendships, etc. is not withoud downsides.

People don't move to a place because that place has cheap housing, otherwise people would be piling into the countryside. People move places with better economic opportunities for them and their families, generally that means jobs but it also means low crime, good schools, entertainment options and more.

As for companies moving, there is good and bad about your hq being located close to other hqs and good and bad locating away, but there is generally far more good in locating together. Shared talent, shared training...

Exactly this.

It’s also worth noting that this is true for people who are well past the “foot in the door” segment of their careers — even if one is able to move to a low CoL area thanks to remote-friendly policy at their current company, by doing so they’ll likely be locking themselves to said company for an indefinite period and greatly diminishing their chances at getting raises. Of course that doesn’t matter to everybody, but generally speaking it’s against one’s best interest to move away from the city despite savings on housing, commute, etc.

Many employees cannot or are unwilling to up and move so it is quite difficult for a company to relocate a headquarters. Companies can open a regional office elsewhere but that has its own problems with communication and distributed teams. Problems which are manageable but can require new processes and training.

Relocating HQ means laying off all your employees. This is not a figure of speech or analogy, it’s literally true. You are laying off all of your employees in the current location when you move the jobs away. The question is whether those employees are going to choose to uproot themselves to go work for you at the new HQ, or stay behind and find another job. Most will stay put instead of moving away. People generally don’t take kindly to forced moves. Many ethnic groups have legendary historical calamities that consist of being forced to move en masse.

If a software company did this, my guess is all development would cease for a long time and you may exceed the “bus factor” and permanently kill a large portion of projects. In fact I’m aware of management at one company winding down projects by moving the skeleton crew who agrees to leave to a lower COL city.

This is not much different from outsourcing to a lower COL country.

Because of my father's job, my family moved 9 times before I was 12. It wasn't as big a deal as you're describing.

Mine too. I hated it. It sucked. I promised myself never to do that to my kids.

That's nice, but would I move to follow my company? Probably not. I'm pretty sure most of my coworkers wouldn't either. Would you?

> Is there that much of a network effect with talent being in one region that companies would rather pay a 4x compensation premium that relocate to new or lower cost locations?

Yes, it's pretty strong.

Employers want to be where the employees are, and employees want to be somewhere where there are other jobs.

An easy example, you can make movies in other regions of the country, YouTube makes it possible, but if you want to easily hire the best people you have to go where they are concentrated. This is why being in the movie industry pulls everyone to LA.

The Bay Area is a hub because it's where the industry was born. People who have deep knowledge in the industry are here. If you want to grow your startup somewhere else, you can. I think the problem is that you might eventually hit a wall as you grow. You'll need to pull in UX research, or a PM, or grow a legal team. In most places in the country, these roles just won't exist, or there won't be any domain knowledge to build them out from scratch.

Also, just like the film/tv industry, tech workers want to move around a lot. Unless you're in a hub like Seattle, NYC or the Bay Area, your options to move around are limited.

Remote cities can work if all the stars align or someone finds a company that lets them remote work. However, once you leave the job after 4 or 5 years, you will have to find another remote working position.

If companies could hire remote employees in low cost of living areas and remain competitive they would have done it years ago. But the effects of agglomeration are simply to great. That's why we have business clusters all over the nation - here is a map of them:

https://www.clustermapping.us/content/clusters-101

What makes you think that people aren’t moving? Population isn’t decreasing if that’s what you mean, but the Bay Area is a revolving door. I own a condo in San Francisco, and I’ve had five different tenants in eight years.

Yup. Of the 12 people from my graduating class who moved to SF, me and one other person is left after 8 years.

Of course plenty more from later years offset that.

From what college? And moving into then out of SF doesn't make the bay area a revolving door.

My (bay area) college class was half from CA, half from the northwest. About 50% of those from the northwest moved 'home' after school. Is that a revolving door? Did they get sick of the area? Or did they never intend to stay?

A surprisingly large number of adults live very close to their parents [1].

[1] https://source.wustl.edu/2015/12/most-americans-live-surpris...

Ironically Prop 13 makes it more difficult for kids to afford homes near their parents.

You have it backwards. Prop 13 overall increases house prices, yes. But kids, whose parents own a home, benefit the most from Prop 13.

Well, sure you might get a home from your parents when you are in your late 50s or 60s. Doesn't do much good when you needed that larger home to raise your own family.

Until 2018 you could inherit homes from parents or grandparents and keep the original assessed value, but that's no longer the case. So unless the kid is earning enough to pay taxes on a massively appreciated house, they're going to have to sell and/or move away.

EDIT: I was wrong about this.

CA property taxes are cheap enough that your taxes on that new big value you just inherited are still gonna be way lower than you'd pay rent for something else nearby... and often be pretty good even compared to some other big cities not in CA.

Or you have multiple kids and you sell the place and split the cash... nice windfall, taxes or no.

Meanwhile, the people whose parents DIDN'T leave them one of those houses are still way worse off...

Source for that no longer being the case? My SF housing activist friend says that this has not changed.

You're right. I confused it with something else.

No problem.

To an outsider like me, this seems like one of the worst features of Prop 13. Over time it separates people into two classes: those whose family has owned property for a long time, and everyone else who can't afford to buy a house because the taxes are prohibitive. (Even if you're very rich, it will make more sense to rent than to trigger tax reevaluation.) Call it neo-feudalism.

Taxes in CA are far from prohibitive, even with today's prices. The gap between affording something in the first place and being able to cover the tax is not that large. But the base prices are the killer.

But that's also largely a factor of mostly high-income people moving in, while mostly lower-income people are moving out. Keep up the business climate that fuels the inward funnel of money, and you'll keep prices high. Even if you reduce restrictions to building supply, you'll have a game theory bit of not lowering prices in any hurry since people can so clearly afford them and are so clearly willing to pay them.

My thought on that is prices reflect the ability of people to pay principal, interest, taxes, and maintence. Lower the property tax rate and prices just go up. Difference is taxes go to pay for public goods and services. Principal and interest do not.

Prop 13 benefits corporations, long term property owners, and people that inherit property. At the expense of renters, new home buyers, and beneficiaries of public goods and services.

Precisely true. Give a mortgage interest deduction, or lower interest rates? Good news! You can afford more house! _and so can everybody else_

...but even this Prop 13 Landed Gentry has a big problem:

They have to live in their fabulously high priced and undertaxed home to enjoy the benefits. They can't move to another town or maybe not even take a job in the other side of town.

They actually could, until December 2018.

https://en.wikipedia.org/wiki/1978_California_Proposition_13...

This is not a feature of prop 13. Generational transfers were added in two later propositions, first for parents to children, later for generation-skipping transfers.

But I still don't get the point though.. unless of course you are arguing that a non-Prop-13 world would have reduced tax for everyone under 1%. That isn't going to happen. we have never reduced taxes in Californa :)

Now let us look at it from the other side

1. The family, probably unfairly, benefited from not having to pay the full tax for so long.

2. In scenario that you mentioned the kid just inherited a $1m+ house. What part of it makes him poor that he can't pay the new property taxes? Sure, they might choose to cash out and go live somewhere else because it makes financial sense for him, but that is not `an unfortunate` situation at any stretch.

3. I know there are significant cost-basis advantage here, in additional to all the wealth just inherited, but I don't know enough about it yet.

I'm surprised that's surprising. I always figured most people rely on grandparents for at least occasional childcare.

Free babysitter? :)

Free meal maker and shirt ironer.

Network effects I suppose. When this economy was based on land and natural resources it made sense to move (and subdue the native population) to open land and gain an advantage, with a service based economy it makes greater sense to cluster at population centers and leverage that. The rise of remote work will probably alleviate this a bit but education, health care, entertainment, hospitality (aka. the fastest growing sub sectors of our service economy) are more valuable when delivered in person. Not to mention fighting climate change (not to say that we're doing a particularly good job) encourages density.

I think it's more precisely referred to as "agglomeration effects" [1]

[1] https://en.wikipedia.org/wiki/Economies_of_agglomeration

> There’s one thing that constantly confuses me with the housing crisis, which is why more people aren’t moving to other cities

The people at risk of homelessness lack the resources to move; the people with the resources to move have, on average, far less incentive to want to.

We don’t know exactly why yet, but the majority of people just don’t want to move. Even in times of war or famine, only 10-20% of the population leave

Well, economic situation is your income less expenses.

For a lot of people the Bay Area is maximizing this. But we're taking a huge social loss (as a nation) by making it so expensive to live in the area that offers the greatest opportunity.

They like living CA better than elsewhere, but don't want the economic profit to go to landlords who didn't create that value.

Charles Schwab is currently relocating their HQ from bay area to texas

Just because your economic situation is unsustainable where you are doesn't mean you'd be better off someplace else. If you arrive in a new city without a job and without connections, you're in trouble from the moment you get there.

I looked it up and people are. California is #3 of states people are moving out of. https://www.thespruce.com/map-shows-where-people-are-moving-...

It seems like people from Silicon Valley are moving to Portland and Seattle specifically: https://www.forbes.com/special-report/2011/migration.html

Not necessarily the best or most up-to-date sources, but I'm only going to bother spending so much time on this.

A lot of tech companies might there be that is where the talent is. Talent moves there because that is where the companies are. A company did want to move to Timbuktu because there is very little talent. And if they did, talent didn't want to follow for dear of being locked in to one company. Remote work helps but isn't the answer

>Or are most people so rooted to where they grew up that they don’t want to leave?

I mean, historically speaking, yeah.

Companies don't move because those location decisions are made by wealthy senior executives who like it here. California is a great place to live if you have enough money to insulate yourself from the bad parts.

>The other thing that confuses me is why companies aren’t moving either

Company isn't a person. It can't think for itself.

Here are the reasons company choose to not move:

1. The powerful executives are often the people who existed since beginning. They've had invested their compensation in the city where the company's headquarter is and now they are permanently part of the city's influencial people with ties in government, law and more.

So you want them to leave and become no one in some new city?

Their old connections and knowledge of the city will become worthless - they made all those connections and acquired that knowledge when they were young and now those executives might be in 40s or 50s and might not have same drive to earn all of that back

They profit from rents, they profit from sale of property in the their city. They profit in lots of ways.

When you acquire new talent, you recognize majority of the compensation goes towards "rent" and that rent end ups in the pocket of successful city dwellers (aka executives at the said company)

When decision makers in the company benefit from this. You can't build a rival company with lower costs unless you can somehow make it run without these executives.

2. Employees will not move that easily because in big cities employment market is efficient, switching to another company is easy and most new players will he dying to snatch those freshly laid off employees.

> It’s been a long time since a "new" city was created

huh?

the I-25 corridor north of Denver is sprinkled with towns and such that were nothing but an intersection and a gas station 20 (15?) years ago. right now they're bedroom community type things, but they've got some big box stores. they'll keep growing.

are they big cities right now? no. (was your claim very specific? nope.)