Hacker News Reader

I remember in the mid-90s, living in Seattle just as one wave of "californication" was drawing to a close and just before the tech boom would start an even crazier rise in housing costs there .... listening to some local talk radio show. A caller was complaining about Californians coming to WA/Seattle and doing just what you describe. The radio host said "well, it takes two to tango, those prices going up reflect the actions of both buyers and sellers, not just buyers".

The caller was indignant: "It would be un-American not to try to get the highest possible price for your property"

The defense rests.

Doesn't seem like mid-90s property appreciation in Seattle could have been pinned on Californians anyway. Wouldn't it have been more related to Microsoft, a gigantic and extremely successful company with an in-house Porsche dealership among other perks?

I see a similar defective thought process right here in Berkeley, CA. Everyone here blames housing demand on peninsula companies like Facebook, Apple, and Google but it's a fact that employment right here in the city of Berkeley has been allowed to double in the last 30 years while the city built zero net dwellings. We can try to blame it on distant villains but the gentrification, to borrow a meme, is coming from inside the house.

Microsoft in the mid-90s didn't seem like it was having much impact on Seattle itself. If there was a staffing explosion, it just wasn't evident in town. Redmond and the rest of the 405 corridor? Yeah, maybe. But not so much Seattle itself.

By contrast, the "Californication" period (say, 87-94) and the tech boom actually took place in the city itself. Keep in mind that in the 87-94 period, Boeing and UW were still the two largest employers in Puget Sound. Companies like Microsoft were "good" for the economy, but they weren't quite the behemoths that they became as the tech boom happened (and, coincidentally, as I left :)

Yeah I would expect that Microsoft in the late 1980s was paying much more modest salaries for software developers. That job didn't really start paying crazy salaries until the VC money arrived with the Dot-Com wave.

I'm curious if you are old enough to remember this stuff first-hand. Microsoft employees were importing ships full of Porsches. Not a joke. Here is a 1992 NYT article about how Microsoft HQ had at least 2200 millionaire employees.

https://www.nytimes.com/1992/06/28/business/microsoft-s-unli...

Not really. Was in my early 20s around then, but didn't live anywhere around there. My experience with programming/IT work at that time, was that it was very much a "normal" job. It was a good, solid white collar job, paid decently well, but nothing you'd get really rich doing. That didn't change for me until the late 1990s when I got a dot-com gig for a couple of years (of course we remember how that ended up).

Were the MS people buying ships full of Porches with equity earnings or salary?

Equity, naturally. In those days it was options and not the grants we mostly see today. You're right about programmer salaries being about in the same league as other professional careers, but I don't see how we can overlook the fact that the stock options existed.

Doesn’t Microserfs go into this?

One thing I don't understand, if dwellings weren't built while population grew, where do people live?

You seem to be assuming that all habitable spaces (houses, apartments, etc) are fully occupied all the time. This isn't the case.

> The Californians, after years of having higher salary, more savings, and a job that lets them move, goes to Texas and offers $400k for that same house. The Californian thinks it's a great deal, because they get the same size house they previously lived in for only half the price! And the seller thinks it's great, because he now suddenly gets a huge premium on his previously-valued-at-$250k-house. All of the real estate responds in kind, expecting to get $400k+ from all the Cali transplants. However, the average Texan, who doesn't have that high paying salary, gets priced out and can no longer afford a house in their city.

That makes no sense. If the housing prices in a market go up, it is because there is more demand without an increase in supply. Not because a certain group is paying almost double the market value for absolutely no reason.

The supply of housing isn't a problem in Texas, but "supply and demand" isn't the end of the story. When two Texans want the same house, a bidding war is artificially capped (at, say $300k) because that's all the average Texan can afford. But when a Californian moves in with high net worth and a higher paying job, they can bid much higher, and they don't mind doing so (the mindset I have personally heard from most CA transplants to Dallas is that they don't care if they paid more than the average Texan pays, because at the end of the day they're still paying less than half what they were paying in CA).

And then there's the issue of property taxes. A Texan lives in his nice $250k house and pays $X/year in property taxes. Then someone comes in and buys the house next to them for $400k/yr. Suddenly this neighborhood is now appraised at a much higher value than before, and the Texan's property taxes are now twice as high, bordering on the edge of unaffordable. I've personally seen several people be priced out of an area due to this.

> I've personally seen several people be priced out of an area due to this.

Ask a Californian about prop 13 ;-)

Which is the root cause of the majority of urban/suburban California's issues.

Texas won't become California, even if 100% of CA's population moves there, because they don't have the same pants on head dumb proposition system.

From the outside I like the proposition system, but not prop-13 specifically.

> And then there's the issue of property taxes.

That seems like a Texas problem being blamed on Californians.

I'm sure a lot of Texans are very happy that their houses have shot way up in value.

> they don't care if they paid more than the average Texan pays, because at the end of the day they're still paying less than half what they were paying in CA

I don't understand not caring about 6 figures of money. Is that really the outlook of the average California tech worker?

The average California tech worker maybe not, but plenty of them are sitting on $500k+ in cash with yearly incomes in that same range. At that point what does $100k mean? $100k makes no difference in the person’s day to day life. If you like the house and you end up in a bidding war, the $100k is more than worth it.

Feels like the solution here is to pay income taxes instead of property taxes. ;)

Yes, all the no income tax states are severely regressive and are bad for people with low incomes and good for people with high incomes, obviously.

Individuals overpaying is not enough to raise average values of houses in a market. In you example the person who owned the 250k house got a nice windfall selling their price above market value but that is not enough to raise the value at large of houses in that market. It would take people systemically overpaying and overpaying in large volume for it to affect housing prices and there's simply no evidence of that.

The real estate market (and well, most real markets) cannot be completely explained by simple supply/demand calculations covered in a high school economics course. Nor can they be entirely explained by a highly-trained economist. There are many factors at play that complicate matters.

Like what?

For example, Prop 13 in CA caps property tax increases on primary residences, which keeps people in their homes longer than they would otherwise stay, which in turn reduces the for sale inventory.

Another example is Trump's Tax Act, which capped "SALT" deductions (State and Local/Property Taxes). This impacts housing prices relative to rents because you can't deduct the full amount of your property tax in high value states like California.

These are two examples...

Only a very small fraction of the housing supply is up for sale at any given point in time. Prices are set at the margin.

>The Californians, after years of having higher salary, more savings, and a job that lets them move, goes to Texas and offers $400k for that same house.

Nobody pays more for something just because they have more savings. They pay more because they might be getting outbid by someone.

I don't see the purpose of characterizing that as "California exporting higher costs of living".

People with more money outbid people with less money all over the world all the time. You can say "Americans are exporting higher cost of living" by purchasing avocados from Mexico, or factory capacity in China, etc. and depriving the locals who can't afford to pay the same.

I'm sure the people in the poorer neighborhoods of Dallas and Austin are complaining about the richer neighborhoods exporting a higher cost of living.

>Nobody pays more for something just because they have more savings. They pay more because they might be getting outbid by someone.

No, they pay more because they can afford it. When a bidding war starts between a Californian and a Texan for the same house, the Texan loses every time because they can't bid as high as the Californian.

It isn't just housing, either. When a new grocery store opens up in one of these neighborhoods, do you think they just sell their goods as cheap as they always have? Of course not. They want to make a profit, so they up their prices because they know the Californians are more than willing to pay for it. The Texan who now struggles to make ends meet because food is more expensive? They get pushed out.

> You can say "Americans are exporting higher cost of living" by purchasing avocados from Mexico, or factory capacity in China, etc. and depriving the locals who can't afford to pay the same.

Yes, that is exactly what is happening. Have you ever been to any of these countries where Americans-with-money swoop in and starting buying up goods or property? They hate it, just as much as Texans hate the Californians who are moving in.

It seems like we're saying the same thing, except that I am claiming it is unremarkable, or trivial. People with more resources have been outbidding people with fewer resources since forever, and whether they're from China or California or Kansas or the other side of town is irrelevant.

If you think discussing the effects that people moving from CA to Texas has is irrelevant when we are literally in a thread specifically about the effects of people moving from CA to Texas, I dunno what to tell you.

That is true, I did lose sight of that. I think the more interesting statement would be California is exporting lots of high income / net worth people, which would prompt the questions of what causes CA to have lots of high income / net worth people, and what causes them to leave?

E.g. Are CA's policies more conducive to wealth creation, and then are people taking advantage of arbitrage opportunities elsewhere to guard that wealth?

At least in Denver, it's common to see Californians come in and for the first offer drop down 20% over asking. No bidding war. They want to guarantee they get the house _without_ having to deal with a bidding war, and have enough savings that the marginal cost of each of those dollars is less than those living and working in Denver.

The extra 20% is the bidding war. If they thought there was a reasonable chance they would be able to purchase without the 20%, they would.

The term "bidding war" doesn't typically apply to initial offers.

The concept of bidding war includes having to pay more than someone else to obtain something. If a market is so hot that the seller has no reason to even wait for competing offers, then the initial offer has to be high enough to make it worth their while. The initial is your bid, and because you predict other buyers will be able to satisfy the seller's demands, you bid defensively by bidding extra.

A single shot isn't a war.

A single shot that decides the outcome is an assassination, and that's generally done to avoid a war that will have worse outcomes, if we want to stretch this metaphor to the breaking point.

As a seller if I got an opening offer 20% over my ask, I'd counter at 40%. Might as well take while the taking is good.

Yeah, I mean people with money buying stuff in the free market and prices going up because of increased demand! Yikes! That's California Communism coming to Texas clearly right there!