The Housing Market With Nowhere to Go but Up
bits.blogs.nytimes.com
bits.blogs.nytimes.com
But am I resentful? No. It's the reality of the situation. For those that are bitching and moaning about not being able to live in SF, you just have to deal with it.
And I'm quite confident at some point, the prices will abate. The best cure for high housing prices are high housing prices.
And if they don't, then the problems that the article describes still won't come to fruition. Price inflation will creep through to all aspects of life in SF. It's not going to be a complete vacuum where only house prices increase and nothing else. As house prices increase so will the price for everything in SF, including wages.
For example, housing prices are too expensive for teachers to live in SF? Teachers from the East Bay, etc will commute to SF, because salaries will increase, especially salaries for private school teachers. If you're not aware, SF is amongst the worst in terms of schools and even worse at placement of children in schools. A co-worker had a list of approx 15 schools he wanted to send his child, and none of them were selected for him. He was forced to send his child to private school, and as demand increases, so will salaries. Restaurant prices will increase, and so will the salaries of waiters, etc.
Provided you have the possibility of actually building more (and/or denser) housing at a sufficient rate.
Housing prices are like high taxes or burdensome regulation - they add to the cost of doing business, and in the extreme case people will just get out.
The end game if the Bay Area won't allow more housing to be built is that the industry will move out of necessity. This is already happening, though not at scale.
I'm old enough to be a crusty dot-com boom veteran. Rent prices were about as crazy as they were today, except it was more in the South Bay than SF, so no one appeared to care as much. My 2 br apartment in the South Bay went from $1700/month to $2300/month after the lease was up. We had to move out and into a shitty rental in Sunnyvale for 2 years, when the rent prices started to drop because of the dotcom bust.
So, the supply-demand equation is very real, and at some point, prices will abate. Nothing goes up forever.
Cry me a river. The demand if from millionaires an billionaires both foreign and domestic. Whatsapp made each employee a millionaire many times over. Twitter IPO. Rich Chinese & Russians. What goes up will keep going up, lib.
I think you have a fundamental misunderstanding of the problem.
For people outside the tech industry, this is already becoming the case. This is why entire neighborhoods are being gentrified: middle and lower-middle class can no longer afford to live there.
Tech workers though? Their companies have bottomless pockets. Google can afford to increase employee wages to keep up with increasing real estate prices. The issue is that Google employees need services like everyone else: police, firefighters, teachers, water, electricity, sewage, just to name a few. But if those service-providers can't afford to live in the city, then what will happen?
Probably this: http://imgur.com/CbyLy7O
In terms of tech companies having bottomless pockets, tht's simply nonsense. Startups can't afford to keep up paying Google-like wages (~200k/yr + $100k/yr in RSUs). And just like the dotcom boom, there will be a reckoning when "promising" startups don't get bought up by Google or Facebook, and their investors start fleeing en masse. Then, as people start moving out of the $5000/month 2 br condos in Mission Bay (as one of my friends were actually paying), prices will drop. It's just the nature of the beast.
While the cartoon is cute, One of two things will happen:
1. The service will decline, people will complain, and the salaries will increase until they are enough to live in the city, or attractive enough to someone to commute.
2. The service won't decline, because these people were not living in the city anyway.
Most of the police officers i knew for DC, for example, lived in the suburbs of Maryland (a 1 hour commute).
I doubt most teachers in the bay area were living in SF, they were priced out of the market a long time ago.
Only if demand goes down or supply goes up. The dotcom bust was an example of demand going down, but I don't see that it had anything to do with the high price of housing.
"Nothing goes up forever."
I don't think you can count on anything going up forever, but I'm not sure I would want to bet too heavily on any particular thing not going up forever - particularly when you consider that something could "go up forever" while having a horizontal asymptote.
Note that I'm not saying nothing else can solve the problem - another decline in tech certainly would - but for it to be the high prices that solve the problem requires those high prices be able to motivate useful behavior.
there would be no Chipotle if the housing prices kept going up.
Or if there was, it would be a tourist stop and would certainly make its money on volume. Basically, it would be like that god awful McDonald's on the Champs Elysee.
In any case, the price for it's burritos would, in all likelihood, not rise to an unaffordable number. At the same time, local residents would not make up the bulk of its customers.
I don't follow this at all. Are you suggesting that restaurants would simply disappear from SF entirely? Or that locals would never go to restaurants? It seems much more likely that restaurants would just get more expensive during which time there would be some churn and turnover in the market.
It makes me cringe that one would even think of Chipotle as an acceptable place to eat in fucking San Francisco.
Why do all these Bay-area startups and tech juggernaughts insist that all of their employees squeeze into housing on the peninsula? Of course many of their employees are going to have to work in SF but why is it so impossible to conceive of having a distributed, remote employee base? There are many successful tech companies (and YC startups) that have done this. It would ease the pressure on housing supply/demand, and also make salaries more attractive since engineers would be paid an SF salary but have more earning power by living outside the bubble.
Anecdotal, but I know people who live in SF who would rather be back in Myrtle Beach, SC - as soon as there's a similar opportunity or a remote work opportunity for them.
The quality of life and work-life balance is not in SF for them.
wyclif: I agree that more companies will solve this problem with distributed, remote teams - which is what we're leveraging to attract those folks to the Beach. http://WhyNotTheBeach.com
And there are some that are even trying to solve that problem by making it easier to remote, like ours (Floobits), and our YC competitors: Screen Hero, Hackpad, Sqwiggle. So there are a lot of options for making remoting easier. I know Zapier has a remote team and those guys are doing fantastic. At Floobits we're entirely remote. And really working from home is the best work experience I've ever had, I don't ever want to have to commute back to SF (I live in the east bay). I've been taking and picking up my daughter from school , I've taken her to the library once a week ever since and I've gone to all her ballet lessons with her. Something I couldn't do when I worked in SF.
I hate that every day working people are priced out of their city, and a socially conscious company could consider remoting as a solution. Good for the community, good for their employees and good for the company.
Between the harsh northeastern winter, and whats happening in San Francisco, we're making a big push to attract folks with low cost of living and high quality of life in Myrtle Beach, SC through http://WhyNotTheBeach.com.
With so many companies becoming more and more open to remote workers, remote teams, remote offices, I think more cities will have the opportunity to attract highly paid, highly talented individuals for more quality of life reasons instead of congregating in tech hubs.
It just comes down to demonstrating that the resources are available locally, or have advanced enough online so that you're not at a disadvantage. One argument to being in SF is everyone is competing for talent, funding, etc. from the same sources. There are investors and talent elsewhere who would love to get in on opportunities, and I think that can start to turn the tide.
As a transplant from Boston, MA to Myrtle Beach - I was overwhelmed after being in the Boston startup scene and involved with TechStars for 4 years. Boston certainly isn't at the SF level, but I still believe there are compelling arguments for those in Boston, NYC, Philly, SF and elsewhere to consider alternative cities with low cost of living and high quality of life. Time will tell!
Yeah I agree.
But being in the Bay Area helps a lot.
If I move to Myrtle Beach, would I be surrounded by people like me who are into startups or will I be one of the few?
It is not even the local resources or quality of life. San Francisco is a poorly-run city. Startups and entrepreneurship, however, thrives in spite of it.
For better or worse, the mindset of the people living in the Bay Area sets it apart. That is something that is hard to recreate.
Yes, for now you'd be one of the few who are into startups. But that was also the case in Boston when I first moved there in 2006 (albeit not starting /as/ small), and I was able to watch the startup community grow and thrive over the next 6 years
* The first link in the list of what you "offer" is broken
* Hurricane Hugo
* Hurricane HazelYou're correct -- on average, there's a major hurricane every 25 years: http://www.dnr.sc.gov/climate/sco/Education/facts/historical...
Hurricane Hazel: October 5-16, 1954
Hurricane Hugo: September 10-22, 1989
Hurricane ____: ________ ____, 2014
There are other possible scenarios for a housing market plunge in SF. For example, if California tries to sharply raise taxes to help pay for their huge government infrastructure, tech companies may decide that they don't want to be in California anymore. They're already hedging their bets. For example, Google has a sizable presence in NYC. When the first big tech company announces that they'll be moving out of Silicon Valley, the housing market will take a dive.
And it's not impossible to run a big tech company outside of Silicon Valley. Microsoft and Amazon seem to be doing OK in the Seattle area. The higher housing prices go in San Francisco, the easier it will be to recruit people to go elsewhere.
The title was an obvious pun, referring to the need for high-rise development (which was touched on in the article, though it wasn't the focus.)
These buyers today are often paying cash-- i.e. they are on the opposite end of the risk spectrum. They have no incentive to walk away if their house value falls 10%, 20%, 30%, etc.
The mid-2000's housing bubble was characterized by rising prices and rising supply. The SF area housing supply is artificially and stupidly constrained by highly restrictive popular regulations in the bay area. There is no reason to believe that it will suddenly collapse, because people actually need these homes and not because they're making trying to flip it to a bigger fool. Nor can they build new ones (which would undermine the price floor).
Even if all those regulations were to suddenly go away all at once (wouldn't that be nice?) what you would probably see is gradual price normalizing over many years and you would probably still ultimately end up with a price level above normal.
In a bubble the price collapses all at once from speculators all trying to dump the asset that they didn't even have any use for otherwise, but the people who had been buying the asset before were other speculators who are now also trying to sell, so you see a sudden market collapse. Speculators know this so even the expectation of a market downturn can trigger the collapse. If people actually need the homes they aren't going to try to sell them the moment they see or expect the market to soften, precluding a such a momentary collapse.
"A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It can be identified through rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline."[1]
The rapid price increases might be caused by speculators, but they could also be caused by the availability of easy money, as was the major factor in the recent U.S. housing bubble (bankers handing out mortgages to people who were poor credit risks). There was rampant speculation in a few markets (e.g., Florida), but the majority of people bought houses with the intention of living in them, not flipping them. The market collapsed when it became obvious that a lot of these mortgages would be foreclosed, and the easy money dried up overnight.
In the case of San Francisco, the rising market is also being fueled by a huge influx of money: the money coming from rising tech salaries. And I think the key issue in this market is sustainability: if housing prices rise faster than salaries, the number of people who can afford housing would decline, demand would drop, and thus prices. And if salaries rise sharply to meet the rising housing costs, the companies who pay these salaries will have strong incentives to start moving out of the area; if that happens, the demand for housing would also decline. No matter how high housing prices go, a company can't afford to pay an employee more than the net earnings the employee produces, so there's a real limit on how high salaries can go.
Sounds like the secret to making any area an attractive place to live is by making it covienent to mass transit. So, add more [fast] mass transit so people can live in more places.
The BART extension to San Jose is also mostly hitting cost issues rather than NIMBY issues. It's currently going to extend to... almost San Jose, the north outskirts, because the funding secured so far isn't enough to build the final portion through to downtown and connect to Diridon.
Also, tech companies are already outsourcing shuttles to contractors. Those contractors could run other lines if someone were willing to pay them.
If it made sense for the tech companies to pay the city to run buses then they probably would. The question is how to provide better service while serving the general public.
I wonder if a company like Uber would eventually start running buses?
Roads would be a big one, but if someone uses a company shuttle and/or drives at off-peak hours, it's not that big a deal. Mass transit and roads are sized for peak-time use.
Water (although SF residents use about 10% as much water per person as people with lawns in the Central Valley), electricity (although at PG&E tiered rates, this is probably a profit center), garbage disposal (charged at cost-plus). Unlikely to depend on the "safety net" services in any way, and the marginal impact on police/fire is low as well (private security for the building, compliant with fire codes). Without children, there's no impact on schools, and I don't know of many 150k+/yr income friends who would send their kids to SF public schools.
Indirect expenditure via the private sector seems like the greatest impact -- eating in restaurants, buying in stores, etc. -- but sales tax revenue should account for most of that impact, as well as increased profits for businesses, employment, etc.
I just don't see even 100k rich non-services-intensive people as being likely to cause a problem. What SF should do is get rid of the previous stupid payroll tax and Ron Conway/Ed Lee's even worse gross receipts tax and institute an income tax of n% on residents or those working in SF. Maybe make it progressive (just set it as x% of someone's California state tax bill?, maybe +10% so it'd be about 1% of gross income?).
Then, having 100k people making ~$300k/yr (reflecting capital gains plus wage income) and consuming <$100/yr in city services in some towers along the eastern side of the city would be awesome.
$300mm/yr in extra tax income would do a lot.
The only problem is that humans in SF don't want more houses, especially high rise housing.
The company I work for (Red Hat) has a huge contingent of remote workers. We work on IRC, by email and (oh the irony) Google Hangouts.
When I lived in Menlo Park, I observed that local politics (definitely including zoning regulations) were controlled by wealthy homeowners, who had a strong vested interest in the status quo.
But absentee homeowners, whose principal residence is not in Manhattan, are presumably ineligible to vote there. So it seems plausible that zoning and other local laws might tilt in favor of the renters, middle class, and others who actually live in their neighborhoods.
"People with high-income jobs" are still workers. The "job" bit gives it away.
EDIT: Disarmed previously snarky response.
If the acquisitions and other positive exits dry up (even for a couple of years) the prices may readjust quickly and once they start to fall the perception of inevitably rising prices will disappear taking further demand with it (people will prefer to wait for cheaper prices rather than buying urgently before prices rise further).
I am not predicting immediate falls by any stretch but when people start saying prices can't fall is when people buy on that basis and are shocked and damaged when they do (which at some point they will).
That's for an entry level cop. The average is around the same as the average tech worker, 140k. Some cops pull in 300k+. They are doing just fine
So in theory the problem should solve itself. If their apps really work, the pressure on Bay area real estate should ease. In practice I'm not hopeful.
Where does the obviously wrong conclusion that tech workers themselves (engineers, scientists, etc.) en masse are the cause of such rising prices come from? What tech worker has ~$825k in cash that they can drop on a house (more like a one bedroom in SF)? It seems to me, people are simply ignoring the math because it's convenient and the idiots attacking google busses and such because they never learned it.