The Rise of Bay Area Rents
priceonomics.com
priceonomics.com
A $1 million SF home has to charge $6000 in rent each month to break even, to cover cost of capital, taxes, and maintenance. Apartment rents cover utilities to varying degrees, as well.
A nice three bedroom apartment is the equivalent of a $600k or $800k condo, which "should" charge $4000+ per month. What is the going price for that rental? Across the bay area, the median is $2500. That makes sense in San Jose, but in other areas, not so much....
So is the issue that house prices are unsustainably high? Or is it the renters have gotten used to prices that lingered unsustainably low for a surprisingly long time?
IMO it is a bit of both. But we have probably under built rental units in some markets.
I ran this awhile back with the nytimes buy-rent calculator: http://www.nytimes.com/interactive/business/buy-rent-calcula...
With a 4.8% mortgage rate, 20% down, 37% marginal tax rates, 3% inflation, closing/buying costs around 3%, 9% rate of return on capital and ~$700/month:
Buying a $600k place is break-even with renting at $2500/month after 4 years and buying is better thereafter. $800k is break-even at around $3300/month
There is government distortion playing in. The mortgage tax deduction (esp. in a state with high income tax rates) provides huge incentives to buy. $4,000 a month in rent is only equal to $800k buying if you are below the 15% income tax bracket.
Ironically, most of my friends who have liquidated their options end up moving out of the city.
Can you expand on this point?
Quality of life is high in the sense that they enjoy what they are working on and feel like there's a decent chance it will make them rich. They are in the middle of a boom and millionaires are being minted left and right. They now have friends they went to school with, who they know well, who have millions of dollars in the bank who rent yachts, vacation in Ibiza, and bang models in Las Vegas (while plotting angel investments and new startups). They feel very close to an indescribable grandeur and if they just keep grinding away they will get there.
So in some ways it sucks, and in some ways it's awesome and they will look back on this period as the best time of their lives. But very few of them think about this as ''real life'' the way people elsewhere in the country seem to, when they think about what community they want to live in, who they want to date or marry, where their kids will go to school and how their life will unfold in the decades ahead of them.
Sure rental prices suck, but to name a few things:
* Weather is amazing. * Wages are higher than anywhere else for my profession. * The quality of food/produce is better than anywhere else I've lived, year-round. * Within a 4-hour driving radius, I can be skiing, surfing, hiking or tasting world-class wine. * Easy to meet up with like-minded people.
It's supply and demand. There's limited supply (SV doesn't build UP like NYC) and a lot of demand (plenty of high income folks).
I agree that rent is high. I'm paying 2x as much to rent a 3bdr/1bath home in Sunnyvale than I was paying for a mortgage on a 4 bdrm/2.5 bath home in Cincinnati. I'd probably be willing to go up to 3x (and might actually have to do so).
I'm not playing the options lottery (though I'm 2 years into founding a startup). I very much like living here and hope I don't find myself back in Cincinnati (nothing against the city, just not my cup of tea).
Sorry to hear the map boundaries are looking weird to you.
We're using US Census boundary shapefiles to draw the city limits. This is how the map should appear: http://i.imgur.com/xk8WI6Q.png - does it look different on your end?
Email me if there's anything else I can do -- omar@priceonomics.com.
Downtown SF just looks... weird. As do a bunch of other sections. A strange line going down the bay parting the water. It makes it a lot more confusing than necessary.
We currently get the majority of our data from publicly available online listings (predominately from https://3taps.com/ and http://www.rentjungle.com/.)
Increasingly, we are also adding actual data from integrations with our customers' property management systems. We think this data set will be more accurate and more valuable, although it obviously takes a lot more work to build.
One of our goals is to be able to understand the difference between listed and actual prices in various markets.
Many many people in the Bay Area are not in startups at all and not playing the option lottery, they are married with children. Some play the management ranks and others contract, etc... I met a woman once in the dot com boom that confided in me that she made $1mill in 2000 over a short time. It got me thinking about the real equations at work. You need to do math, simple math but you need the data which you may not have.
Anyhow, that said, it is true I think that engineers do not get their fair share of equity many times in companies even with dozens of people. So this is when ownership or foundership or close to starting is a stock option play. Options are a contract to own at a price set on the contract. If the price rises dramatically you have a massive amount of capital. Stock options are very risky, compared to straight risk adverse salary jobs. For risk there is reward. It has not much to do with lottery, manly with risk and reward and statistics. You need to crunch the numbers and consider risk and then decide on your career paths.
A lottery is risk, reward, and statistics.
Mousing over to see change does help. Perhaps instead of simply colors (please, designers, don't rely on color alone to convey information. Think of the chil^H^H^H^H color blind individuals) you could have patterns for the fills.
About 8,000 new apartments, mostly in mid-rise and high-rise buildings, will come on line between now and 2015. Thats around a 6% increase.
However, remember that we also have population gains in SF right now from incoming tech workers. Prices in rent are very unlikely to go down, however they will most likely stabilize.
You may be saying that more properties are going to be available around SF, but that has never changed value in SF before (oakland boom, for instance) and instead just made those surrounding areas go up.
You can monitor Craigslist, but then you are tracking rental advertisements instead of what tenants are actually paying.
Rent prices are pretty uniform - there isn't that much differentiation between properties of the same class (# of bedrooms and location, are what mostly matters; tenants don't make choices based on the type of furniture); so prices are relatively uniform - you don't have to ask a lot of people get those prices.
This is of course confirmed each time someone tries to create yet another index - if you use the same basket and weights, only rarely there are any differences in recorded prices.
Damn... 3000$ to rent... for a MONTH?!
I could get one hell of a house here at that price...
If you are single or willing to leave cheap there is good options
(Unless you make 50k in Texas, in which case, do move, you can always move back, and cling on to the new salary bar)
Google Maps gives a < 1 hour each way commute (BART or bike + ferry), which I don't think is horrible. Is Google Maps just super optimistic?