San Francisco Real Estate Exuberance
priceonomics.com
priceonomics.com
If you can get someone already in SF out to say Boise, Denver, or Phoenix they can make 80% of what they made in SF and have a better lifestyle. If you cover the cost of moving that should make it a very attractive offer. Sell their home in SF (if they own), and buy a nicer/roomier place in the new location.
Phoenix in particular has a pretty thriving tech community, and a far better cost of living. The main reason I stay here is the job market is great, and the cost of living is far better, relative to programming pay than most other areas. Of course there is the down side (June, July and August).
Vacation homes, exactly. Lifestyle business guys, freelancers, writers, yeah of course. But trying to found the next Google in Tahoe doesn't make sense unless there's already a major "anchor" tech company in place there.
Someone could easily save $20k a year between lower rent (1500/mo vs 2500/mo) and lack of CA state income tax (9k?).
Some people are fine with living anywhere. Others are looking for good weather, a specific culture, or something else.
Our biggest drawback is a weak VC climate and no international airport. Housing isn't exactly cheap either (median home is $567K) but there are plenty of options within 20 min drive. So, we won't be the next SV but it would be cool to see more companies starting and staying here–or more large companies setting up satellite offices here.
I regret leaving SLO county. I live in the Bay now, but returning is on my to-do list.
Given this, what's the point of putting the company there? We could have put the company in Modesto or Stockton, where people could live in much nicer homes during the week (and the company would pay a lot less for office space), and they would save so much in living expenses that even if every weekend they drove to San Francisco and stayed in a nice hotel and ate every meal at a nice restaurant, they would still come out ahead.
If your business model does not include strong growth, you have the option to organically growing your dev team from smart and less experienced people over the course of many years.
If your business model includes VERY strong growth, paying top dollar to hire experienced people may be a necessity. Large numbers of experienced people can (more or less) only be found in SF/SV. It might cost 4X as much, but it can offer a potential payoff 10X or 20X or 40X as great. (At least that is what the VCs are looking for.)
And many businesses live in between these extremes, where the optimal choice is unclear. Choose wisely.
VC money and the active community play huge roles here. There are dozens of meetups you can go to and meet people interested in programming or startups. There are hackathons every other weekend and a lot of tech based conferences are pretty much routine. There are happy hours almost every day of the week at various incubators or shared work spaces or even at clubs hosted by a startup.
The sheer volume of events and startups and tech based companies here blows Boise, Denver, Phoenix, .... all other cities out of the water. That's why SF is so expensive to live in -- all these tech guys get paid $$$ and landlords feel as though they can just keep raising prices to take over that income. It's similar to how NYC got extremely expensive because of all the financial guys making tons of $$$. If there is cash to be had, it'll raise the cost of everything.
If there's cash to be had, it'll rase the cost of... some things.
First of all, obviously, of real estate, because there is a finite stock of developed real estate, there is finite land nearby (especially in San Francisco), the short-term supply curve is relatively inelastic (i.e. it takes time to build apartments) and the long-term supply curve isn't that elastic either (because local governments limit construction through the political process).
And then that will push up the price of things with real estate as an input (e.g. restaurants and grocery stores) and with labor as an input (also restaurants and grocery stores and other things in the service industry)....
But that's about it. Some things will remain cheap. You can buy the same cheap electronics and home furnishings and digital media off Amazon.com as anyone else does.
The economic/networking benefits are huge, of course. But you can't ignore the "cool" factor.
It's not just some ephemeral thing. Being in a "cool" city means vastly more and better dating opportunities. Also social ones - more like minded people - but dating ones in particular.
Young people with disposable incomes want to hang out and date others like them, and that's one of the biggest draws of a city like San Francisco.
Also, the old "odds are good, but goods are odd" saying shows how people actually feel about living in monocultured, gender-skewed environments.
Also the same article suggests that 2.2% of households are gay male, while .8% are lesbian. That means the heterosexual ratio is even better.
Now I'll grant that it's easy as any place to run in circles that are skewed, and as much as we might wish (and often work) for it not to be the case, there are many more men involved in developing. If you only work and go to tech events (or other heavily gender skewed events, like Magic:The Gathering events), it might seem pretty skewed. But it's really not. There's a lot going on in the city.
Even then, "[the] odds are good, but [the] goods are odd" sells developers well short.
From a less cynical perspective, the fact of the matter is that compared to anywhere I'm aware of, the Bay Area has a much stronger culture of entrepreneurs assisting each other. There's a much stronger culture of what could perhaps be framed as mentorship, with a large population of people who have been in the game for a long time and are still engaged as founders, executives, or investors. It's also probably one of the few places where there's a widespread acceptance that innovation means experimenting with risky business models without being forced to constantly focus on short-term revenue.
From a more cynical perspective, in many cases for younger or newer founders, this means it's easier to climb the social ladder and be in the "tech entrepreneur" scene. It feels exciting and the money flowing around between young people (something that doesn't exist everywhere) makes everything seem more real than it is. I also think it's far easier to inflate the value of companies here for a variety of reasons.
Because of the density of "cool projects".
If I move to Boise* to work at your cool company, and something happens, and it's not so cool anymore, I'm in Boise. If I'm in SF, I go next door.
[1] Sorry Boise. I chose you because the grand-parent used you as an example... feel free to insert your favorite city for rhetorical purposes
But honestly, if you want to live a life that involves kids, a car, and doesn't involve the community as heavily, SF isn't for you.
I would not argue that its intentional, the environment really promotes a certain kind of person living in the city - the kind of person who can and wants to spend countless hours at a startup.
The kind of person who doesn't have a car, who DOES go out all the time, and so on.
Speaking of - I was thumbing through the blog that the original article was on, and there was an article about the market for Aeron chairs... hidden in there was the fact that, "oops, none of us have cars, how can we transport these?!"
It's somewhat telling. Can you think of another place in the US(besides the other startup hub, NY) where you'd see people making over $100K not having cars?
It's a very precise social strata that SF is selecting for, and it is a strata that includes ideal tech workers. Companies move here because that's where the workers are. Having 50% more real income isn't worth much if it tears you out of the great social environment, especially to a third-tier city.
Good news, though: it's not like the whole Bay Area is the same. There are perfectly family-friendly communities in other areas, including parts of the South and East Bay.
I could go on at some length - since I've been in both the job hunt and the online dating world heavily, I've become very acutely aware of just what is (and isn't) cool, especially as cities go - since it's a fascinating intersection of economics and sociology.
Yeah, I dunno. Today Silicon Valley sounds more and more like the old money club of Wall Street than the kids in the garage that will soon revolutionize the world.
Of course, a big part of revolutionizing the world is not knowing you're doing it. You can't throw a rock and miss a start-up in SF that isn't planning on "changing the world" right now. Most are doomed.
Your statement is an example of a non-bay-area mindset. Failure if a badge of honor -- it means you contributed to the community.
Founders move on to get jobs as VCs or high-ranking executives at more stable companies. Employees lose their jobs and don't get any severance.
Yes, honorable.
Here is evidence that Google wanted to "organize the world's information" in 1999. http://googlepress.blogspot.com/1999/06/google-receives-25-m...
Certainly world changing success is very rare. But explicitly aiming for it seems like it would help rather than hurt.
... or Holywood, where VCs (producers) minimize risk by funding well-known formulas betting that a blockbuster will save the summer, while talented programmers (actors) get any job out there, stay a few months, cash in and go to the next gig. A bunch of other untalented wannabes (biz devs, MBAs, PRs) act as talent scouts, schmoozing at "parties" (meet-ups) trying to find the next fresh-out-of-the-boat programmer to exploit.
In that sense, I believe NYC and other areas provide a much healthier environment for true "indie" productions (aka customer-centric development)
I love NYC as a city, but New York VC-istan is awful. Just fucking taint-sniffingly hideous. Unimaginative, with even more MBA-culture. And the sorts of MBAs that end up in New York startups are catastrophically bad-- people who just weren't smart enough to stay in finance (and that doesn't take much).
Go to "other areas" if you want an indie scene: places that are clearly on the rise like Austin, Durham, Boulder and Baltimore. Funding will be harder to get, though.
SF might be expensive but it's fun in a way that Boise isn't for (most) young people. If you ask a fresh Stanford or Berkeley grad to move to Boise and take a 20% pay cut (even though it's more pay relative to the cost of living) they're going to hang up on you.
I lived in Phoenix and I moved to San Francisco to find work precisely because of Phoenix's dismal tech industry. After my contract ended last year, I had three or four job opportunities in Phoenix that I had to turn down. There is no worse feeling in the world than turning down work when unemployed because those jobs would have been huge steps backwards in my career.
One was with a college where I'd be rewriting the same web form in PHP with some rudimentary javascript every day--no growth opportunities. One was with a custom automotive shop that hosted their website on phpBB and had the worst code imaginable as demonstrated to me on a programming test. Another was with a web design firm that listed the most extreme political candidates in the state as its clients. None of these jobs were accessible by transit, incidentally, and would have given me upwards of a 20 mile commute from downtown (the only place in the Phoenix area with a modicum of arts, culture, and entertainment options--and that's about 0.001% of what the Bay Area can offer).
IMHO, it's still 2006 in Phoenix's web dev industry, with a bunch of crappy PHP jobs and maybe five Ruby on Rails jobs postings a year. Companies that serve millions of users and are on the absolute cutting edge of technology simply do not exist in that town. I am certain that my job, writing enterprise social media management software in Ruby on Rails does not exist in the state at all.
Practically speaking, the access to venture capital, tech journalism, and labor in San Francisco and Silicon Valley is utterly unmatched in the nation.
Personally speaking, my quality of life, partially because of a 43% higher paycheck (before bonuses) than I'd ever make in Phoenix is unmatched. My rent might be three times as much, but I've more than made up for it in improvements to my social life, mental health, dating life, and about two dozen other factors. The funny thing about expensive places to live is that they're worth it. Your idea that people have a better lifestyle in Phoenix compared to San Francisco is an absolute Dunning Krueger--there are FAR more factors to one's quality of life than how big their house is.
When I talk to Californians about Arizona the only positive thing I heard was that somebody liked Sedona or Spring Training on vacation. The vast majority said Phoenix was too hot and racist and couldn't imagine living there for any reason. I wouldn't move back to Phoenix for a part time job that paid a half million a year.
However, I just can't get the quality of work in Arizona that I can get here. When I go hunting for a new job here I can talk to dozens of world-class companies making products used across the world. More importantly, these companies are really innovating. They aren't just rebuilding or reapplying the same technologies.
That fulfillment in my work is worth dealing with the cost of living, though most of the companies compensate well.
Arizona doesn't get it. If you aren't building, selling or financing homes...they can't help you.
Not sure if that would work in Boise or not, but it's doable.
Unfortunately, I haven't been too impressed with the job selection in Portland. Though, I may be doing my own startup in a few months; Portland may be my spot for seeking residence and capital.
1. Early evangelists/Network. You can effectively "buy" 10-15% of your long tail by living/networking there. (assuming you have a compelling product)
2. Capital. Capital is recycled in tech companies in SV just like finance capital is recycled in NYC.
These are two areas that many companies find very difficult to do in early-stage.
The only way to get them to work for you is to have an office in the city.
I can't say the same thing about any of the cheaper places you mentioned.
1. I can walk to everything I need within a half mile radius from home, including most entertainment.
2. I can get married to my (also male) partner.
There are quite a few places in Europe that are open to me, but surprisingly few American cities. And that's why many of us are in SF -- we dislike driving and like liberals. :)
No disagreements on the later.
In addition, my wife was a teacher and advocate for at-risk minority kids in SF, and I can tell you this whole thing about SF being "minority friendly" is a bunch of BS. Affluent new residents (such as high-tech employees) are very passive-aggressive about "accepting" minorities, but behind closed-doors they are actually very conservative. And the city policies are there to prove my point.
I am not trying to discourage you. I'm just trying to alert you to take the whole "SF vibe" with a grain of salt, as my wife and I have witnessed that first hand.
I live in Vancouver. I can wake up in the morning take the Canada Line -> YVR -> SFO -> BART -> your SF office by 10AM.
I bet there are a bunch of other cities like that. Portland would be a good bet, too.
But intellectual density matters. It matters especially at inflection points like launches, fund raising, etc.
Serendipity matters, too. You're going to end up meeting that next hire, customer, journalist, etc the next time you are in a coffee shop.
In theory, yes. In practice, no (unless you are part of a minority that can afford to fly across borders multiple times a week)
San Francisco is my home, and I love it.
It gives me more disposable income and tons of reasons to want to hang myself. To wit:
- Driving and car ownership
- Lack of convenience, quality and variety in food choices
- Fewer options for personal fellowship and professional networking
- Cannabis prohibition
- Loss of weather I love
- Dull landscape
...to name a few
People live in San Francisco 'cause it's wonderful and they can. Only a gun could "lure" me from here.
Of course I don't mean to suggest that's the only alternative. Rather, I agree with the OP that it seems like there's an argument to be made for basing your start-up outside of San Francisco, and there are at least decent alternatives.
Only it rains 8 months out of 12 in Seattle :(
It is dark 8 months per year; and it doesn't help that statistically it actually rains only 150 days.
If not for the "dark" months, this (PNW) would be the best place on Earth as far as I'm concerned. But, as you said, no place is 100% perfect.
Some people are annoyed by San Francisco but live there just because that's where the work is. Other people like San Francisco just fine but are ready for a change. Those people are the ones that can be lured to new places, not you.
Idaho and Montana have been lax on cannabis forever, even if their laws don't explicitly allow for it. There is something quirky about libertarian survivalists, hippies, and LDS members living closely together in the same state.
Yes you can pull it off in Boise, but it's harder. And when you factor in loss of access to mentors, VCs, and suppliers and leading edge customers, you wind up being penny-wise and pound-foolish.
We're still in the facebook era with regards to how most founders think about hiring talent. So SF it is.
Many of the other places you mention are much more family friendly, and still pretty cool for young people.
I'm originally from Michigan, and have lived in Houston, Boston, and Ft. Lauderdale. I can safely say that the "cheaper" places were a huge PITA to find a good job in. Especially if I didn't want to deal with office politics, puritanical dress codes, or other stupid bullshit.
And fwiw, I've worked with Startups, Hospitals, Banks, Researchers, and Factories. There are definitely bonuses to living in a cheap & small town. But unless you are able to work remotely you will likely have to "settle" for a job.
Goldman Sachs' #2 campus is in Salt Lake City. They pay less and save on costs but I suspect the real ambitious employees don't take that assignment. You are going to have trouble climbing the ranks if you're posted out in Salt Lake City. It does attract the people who don't care so much for corporate climbing and prefer quality of life.
It's similar to picking between State vs. Private institutions for school. You will certainly get more bang for your buck in at the State school but you will miss out on the pools of brilliant minds at MIT. (There are similar echo chamber trade offs)
Raising funds aside, you gotta ask yourself... is the additional runway gained from moving to a cheaper location worth the potential gains in learning? Is my startup about the hours I put in or about how smart those hours are? I think that you acquire entrepreneur knowledge quicker in SF than pretty much anywhere in the world. I feel like I've gained decades of experience in only 2 years here.
You'll have more money left in your pocket after living expenses but then you won't get the culture, the nightlife and the food.
My theory, if it holds, says that a bunch of 20-somethings flooded into SF in the past 2-3 years. When they reach their early/mid-30s, they will begin their nesting phase.
They'll want to find/will have found their mate and will want a house with some space.... The chance to finally to get out of their dumpy studio/3-bedroom-with-roommates... Some well-deserved adult digs, after years of hard work in this industry.
However, they'll look around at house prices, look back at their bank accounts, and realize such dreams could never be fulfilled here.
At that point, they'll pick one of four paths:
-Buy property in a remote, suburban sprawl-y part of the Bay Area (an unattractive option to anyone who's lived in SF for many years)
-Buy some depressingly expensive one bedroom condo and stay here
-Become a lifetime renter
-Move away from the Bay Area ('back home', or elsewhere)
In my opinion, a 30-something, on the verge of midlife crisis anyways, will take one more shot at the great unknown and set out for a new region, outside the Bay Area.
Unless, of course, they sold their startup for 8-figures and escaped with a big chunk of compensation.
Thoughts?
You can't live comfortably in SF proper on less than $120K-150K/year.
If you network and land in a rent controlled apartment (a friend of a friend has the 4th floor of a mansion in the haight for $900/month) you can do it for even less.
A 1-bedroom in a building next door to the Mission Hotel - San Francisco's biggest SRO hotel, located in the Mission District - just went for $2800/mo.
And the building isn't rent controlled.
I was talking about places like Sunset or Ingleside--not highly desirable, but not Hunters Point or the Bayview.
Except my half of the Berkeley two-on-a-lot cost substantially more than $750k...
Welcome to the neighborhood! :)
It might fly if you fly. :-) I don't know if this is still true, but when I lived in Silicon Valley a little over 20 years ago, I did some price comparisons, and it worked out that for the cost of a nice SV house, you could buy a much bigger house and pool in the Merced area in the Central Valley, and a Mooney M20 (private plane with a cruise speed of over 250 mph), hanger space for the plane in Merced and Palo Alto, and a car to keep in Palo Alto. You could even get the house on enough land with room from a runway, to save having to drive to the Merced airport every day. Get a couple other people to move to Merced and share the commute to split operating costs of the Mooney, and it looked like this would actually be quite viable.
I work remotely for an SF-based company from Dallas, and I actually observe this happening.
Every month or so, we get an email about some departure from one of the Bay Area folks who is moving "back home." Any digging usually reveals the person had their first child.
I actually observed one couple do the opposite. They subsidized one of their mothers expenses so that she could move to this area, work part time, and act as their primary daycare provider for their new child. They ran the math and found that it was cheaper than daycare and with healthcare reforms the mother was no longer tied to her old job and could so afford to quit and move.
However, this parent was renting to begin with, and I don't expect most parents to leave their hard-earned homes and communities to come support their children rather than the other way around.
To think that the bold 20-somethings flooding into SF these days have a path charted for long-term residency here seems all but impossible...
Also, try being from the Southeast and missing Southern culture (well, the good parts of it, at least). There's very sparse tech hubs in the Southeast. Effectively none if you want to live in a coastal city.
Arguably, the SF rent issue has implications in that sphere, as well.
Now, the problem is that percentage of kids has been constantly declining. It is interesting to see at which point the economic system of the city will collapse because it lacks diversity. Or it is really possible to have city without kids and without older residents: just dogs and DINKY couples.
[1] - http://www.huffingtonpost.com/2012/03/09/families-flee-san-f...
And this is in an industry where remote work is possible. Finance is less possible to work remotely.
Or be happy with a life without children as a lot of us are.
So, this brings me back to the original predicament: when you get to nesting age (which normally runs concurrent, or closely precedes Having Kids Time), you're gonna start looking at your finances and looking at the local real estate market and many will need to make some very tough decisions - decisions that I, personally, don't see including San Francisco.
It sounds like you're brought up with a more traditional expectation of constitutes a house - 2.3 kids, picket fence, et. all. That's depressing.
I also think that New York's tech scene has a lot of quantity but not much in the way of quality. For every good company there are 50 dipshit companies founded by fired bankers and real estate guys who think waterfall is a valid software methodology and not an anti-pattern.
High housing prices truly are culturally toxic. I'm surprised more people don't get that.
I'm curious to hear about the SF Bay Area tech scene frame in a similar point of view, from the older (wiser) hackers here.
My young brain hadn't yet connected the dots about the whole 'reaching a point where you have to move into management or finance, due to career path' thing, which is a very interesting angle.
To raise kids though? I grew up in the suburbs, now live in SF, but certainly plan to live in the suburbs when I have kids of my own.
Places like San Mateo county aren't SF, but they certainly aren't remote.
Owning a car is like shooting yourself in the foot to stop a robbery, except in a handful of neighborhoods.
It's a great town for young men(some of you), but it's horrid for straight women. If you make your fortune with your start-up, you will move to Marin, and live like a hermit. Although, your neighbors won't steal from you.
Home is really a state of mind. I've seen successful Flat Landers arrive in the Bay Area, and realize they might have been the popular kid in there town, but in reality there just a C student--on all levels. They become depressed within a year.
If you do decide to live if San Francisco most people assume you have an advanced degree. They are not impressed by where you went to school. They are impressed with what you built in your garage though. If you enjoy working with you hands, and back, look into local 6 apprenticeship program. If you become a book 1 dude, you will make $100/hr. If you become book 1, don't turn into an asshole though. Remember, the only reason you make that money is because of a liberal Union.
Europeans get xenophobia all wrong. They freak the fuck out about minarets but do nothing to keep foreign speculators and billionaires out of their real estate markets.
If you want a decent life in your town, keep the despots and oil sheikhs and drug kingpins the fuck out of your real estate market.
It's not the speculators or billionaires, it's the governments.
I saw the same thing in Italy when I lived there in the 90s - any kind of real estate was much more expensive than it seemed like anyone would be able to afford.
Never did figure it out - in the US, the public policy issue with homeownership is making mortgages easier or harder to get. If they're easy, then prices go up but more people own something. If they're hard, then prices go down (because no one bids them up) but fewer people own. I can't figure out a policy that leads to high prices and low rates of ownership.
Restricting affordable housing so that it doesn't grow as fast as population. In the UK the rise in the price of housing is expected to hit 7%, whereas inflation is supposed to maybe get as high as 2% over the next two years. This should give a property bubble in the southeast before the next election, which the government can claim represents an economic recovery.
-- Software Engineer in SF
Is 73% a typo? It seems like it should be lower based on the tone of the sentence.
Easy. When the bubble pops.