The people who grew up there (whose parents owned homes) are doing quite well (at least their parents are) because of the vast appreciation of their homes. Among some of my wealthy friends that have paid ridiculous prices for real estate in SF, I have heard the rather condescending term "thousand dollar millionaires" used to refer to these long-term homeowners that did nothing to create a $1M+ net worth other than pay their mortgage and live in the same place for decades.
Anyway, it's not the people who grew up there that you should feel bad for. It's the people that need to be there for one reason or another and can't afford a living wage with the incredibly inflated prices and taxes associated with living in SF and California in general.
This is more along the lines of what I meant, although I'd wager plenty of people grew up renting and have been slowly pushed out of what feels like their home by skyrocketing housing prices as well.
Now, if they live with their parents, that is certainly a leg up in terms of not paying rent (or paying much less rent), but other than that...
Council rates are assessed on unimproved land value - which usually lags well behind actual land market value, and far below actual house & land value. Most people pay more for electricity than they do for council rates.
I live near several old-lady-millionaires who moved into coastal properties on retirement - husbands have passed away and they are still in the homes 30+ years later. But they have no intention of moving and cashing in, and despite presumably modest incomes, have no problems paying the rates, which add up to about $40-50 per week. I also suspect their children aren't keen on them selling up.
But as far as council rates forcing people out, it does do that in some areas, especially when land value goes from something like 100,000 to over 1,500,000 in 30 years.
If you sell, then say goodbye to your city. If you don't sell, then you don't have this capital, and you still live in a very expensive place.
You can mortgage it for a lot of capital, but this is a poisoned chalice.
Other means to actually realise any of that wealth is to try your luck and speculate downwards, which is extremely risky if that's your only big asset.
Lots of people are "feeling rich" without being realistically able to realise any of this wealth, since they cannot really move away from their city. This is fictitious wealth that constitutes a massive burden to the city and endangers its competitive place in the future.
It will pop sooner or later and its likely to cause massive social problems. It's causing them already even before that happened.
I work as a real estate analyst in Shanghai, and this same situation is playing out here. Like San Francisco, buying a 2 BR 1,000 sqft apartment in the city proper can cost upwards of US$1M (RMB 6M), though here the GDP per capita is only US$6,000 vs ~$42k in the US. Also, many Chinese feel to own a home before marriage, which is usually accomplished by pooling the savings of parents and grandparents, and assuming one will be in debt until the end of time.
Those that have apartments probably bought them 10-15 years ago, when the price was 10X less. They are, as you mentioned, asset rich, but it doesn't translate into any greater quality of life.
The good news is that the rental market is relatively cheap here. In real estate terms, the cap rate (annual rent / sales price) for buying an apartment is around 1.5-2%, compared to 5%+ even in places like SF.
The market here in China, and the general obsession with real estate, is a deep an interesting topic. The best summary I've found so far is the corresponding section in the book "In Line Behind a Billion People". It's expensive by ebook standards but well worth the time/money for those curious about China.
http://en.wikipedia.org/wiki/California_Proposition_13_(1978...
http://en.wikipedia.org/wiki/California_Proposition_13_(1978...
So if you've owned a property since the 70s you're most likely paying less in taxes than someone who'd buy it from you today.
I've been lucky enough to have parents who could afford to help me with school, and have an interest in a lucrative field (computer science). However, many of my highschool classmates did not have one (or both) of those advantages. They are also squeezed between a high cost of living and the lack of jobs that provide a realistic living wage. However, unlike migrants from other areas, the less fortunate locals do not have another home to go back to. I know families that moved their entire family out of the state while their kids were still in school because it became financially untenable to live in the area.
This situation reminds me of the ongoing situation in SF. There are plenty of stories (anecdotal though they may be) of long-time residents being forced out of communities by the economic climate. It is easy for outsides to look at the Bay Area and see a city made up of tech workers making $100k+ a year, but the reality is very different. The same is true of people who bought their houses in a different economic climate. At least the parents have the "escape value" of their houses, as long as they're willing to sell off 18+ years of their lives.
The intransigent "family farm" that is ingrained in the American psyche is being eroded by a practical reality - and on some level everyone feels it. The newer generations are increasingly less attached to their place of birth. The Bay Area is rapidly changing, and I'm happy for all the people that now live there and call it their home.
It's no longer my cup of tea, but I'll find my place somewhere else. Please don't feel sorry for me =)
But still, it's insane in the Bay property market again. Anyone from the Bay knows a bubble when we see one by now. When all the hipsters and their credit-cards run out, the market will crash and the locals MIGHT be able to buy something again. There is also the elephant in the room called Prop 13 that is not mentioned here. That, among all other bubble ingredients is the main reason why property in the Bay is the way it is.
Just curious, but what happened to property prices in Oakland/SF during the last crash (2008)?
It's just as likely to go sideways for a decade or two with devaluation only due to inflation. Japan is the best example but Australia never had a major crash and seems to have rebounded again.
Maybe if there was another DotCom crash it might take the real estate market down with it.
Still, until you can reasonably pay a mortgage on 2 incomes, pay for kids, medical, and insurances, then these bubbles will continue. Rent? Sure, but rent also has to make sense. You can float on credit for a long time, but eventually people have to have a future for your market to exist. Otherwise, they'll just move to Tuscon or Denver. Similar people and climate (not lots of snow for months on end).
- Restrictive policies on land release for development which is the simple classic supply/demand explanation
- Low credit costs and negative gearing tax concessions which encourage speculation fueled by debt (Keen, Minsky, et al)
The First Home Owners Grant and other schemes also stimulated demand but any value was quickly absorbed by the rising prices. On top of this spruikers pushing get rich quick on property also inflated the market.
Now, everyone's stuck where they are.
A true correction here will require either a normalisation of interest rates or repeal of negative gearing provisions. Neither of which the current Government are likely to allow.
Most likely it will be a long slide and a lost generation who's best bet will be waiting for an inheritance. That is if their baby boomer parents don't reverse mortgage the house to fund their retirement.
-Supply/demand problem-Check
-Low credit costs & speculation (though in a bubbly way)-Check
-Unlikely repeal of Prop13-Check
-Likelyness of parents selling house & moving to Arizona-Check
Yep, getting out sounds better and better
I used to read this blog back when I was watching for the crash that never was. (Doesn't appear to have happened in Canada either) He had an interesting tax story from a few days ago too about inheriting property.
Looking at BLS data, jobs for Software Developers in San Jose-Santa Clara are actually about 15% higher than the next highest municipal area in the US (Seattle-Bellevue). The average Software Developer job in San Jose-Santa Clara makes $28,000 more than the same job in the New York Metropolitan Area.
This doesn't account for the increased cost of living that should be compensated for, as well as any risk premium for moving in the first place. I don't see how people pencil out the numbers to convince themselves to move into either Silicon Valley or the Bay Area, and I'd honestly like to see how the numbers shake out if someone has made it work. Unless one is Fabrice Bellard-level quality, I don't anticipate most average arrivals to SV or BA ever getting a 200-250% salary increase to just stay in a Red Queen's Race personal-finance-wise.
The landowners of Bay Area are the new store owners of this new gold rush, profiting with much lower risk premiums from the majority of "prospectors"/programmers flocking to the new gold fields while the stories of "hits" keep luring in fresh meat each year.
Where are you working? Total comp in the bay is often much higher than other areas (data-points from Seattle, LA, and New York)