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Comment by downandout | Hacker News Reader

>I feel bad for the people who grew up in the area

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.

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Asset rich, when your asset is your home, is the worst kind of rich. Unless you have something else very very compelling to back it up.

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.

This is an excellent point.

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.

In fact, it can be even worse with rising property tax valuations. The home you've owned forever might cost you more in taxes a year than a mortgage would be in many places.

My understanding of property tax in SF is that it is based on the price the house was purchased at. This means that the home you've owned forever has had a predictable tax based on that price, and only new owners you sell it to will be paying the higher cost tied to higher property value.

That's all of California, thanks to Prop 13.

http://en.wikipedia.org/wiki/California_Proposition_13_(1978...

Really, the article left out that HUGE issue. If you grew up in the Bay, you are very very familiar with this. I am surprised how many commenters here claim to live in the Bay, yet don't understand property taxes in California. It's a major issue in the state, not quite as big as water rights, but still major.

A good point. To be fair, I've only been to CA 3x and live in Boston.

I'd rather be asset rich than straight up poor!

This is an interesting perspective. I'm from Marin County (the "classic" cloister of the rich in the bay area). While I was growing up (1985 - 2004), there was already a cultural gulf in the community between the older population (families that had purchased houses before the prices spiked) and yuppies who were buying housing at hugely increased prices. On paper, many people in Marin are very wealthy, but in practice this isn't as common as the stats suggest (An ex-girlfriend's parents weren't well off enough to help her attend college, but her parents were considered too rich due to their house for financial aid).

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 people who grew up there don't have any extra wealth. So long as their parents continue to live in the same house, it's all just wealth "on paper".

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...

Is being a homeowner really the standard situation in SF one generation back?

Not in SF proper... I'm a native san franciscan that grew up in the mission in the 90's, and virtually every native san franciscan I've ever met has been a renter. I only had like 1 friend in high school whose parents actually owned a duplex in noe valley, but other than that, pretty much everybody was in small apartments. I think this is the reason why a lot of the "if you wanted a stable living situation, you should've bought a home" type arguments aggravate a lot of the anti-gentrification people in SF...

Many parts of Silicon Valley were (and possibly still are) suburbs in the past: Palo Alto, Mountain View, Menlo Park.

That same sort of thing happens in Australia, especially for coastal and beachfront properties. Where property was really cheap because it was far from major centres ended up getting really expensive over time. The only difference here is that those people tend to be squeezed out when they can no longer afford to pay the council rates (local taxes based on the value of the property). So they have to sell up, make a lot, pay a lot in income tax, and move somewhere far cheaper.

There is no tax payable on selling your home in Australia, unless it is a second home or investment property, or you purchased it before 1985 (in the case of investments).

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.

Yes, no tax for the primary residence, somehow I forgot that.

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.

Sunshine Coast resident here, Demographia's most unaffordable in 2009. The Buderim market was insane during that time. Sold out in 2008 and sat it out until last year.

> 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.

But if you still live in said house, you're actually LOSING money because of the increased property taxes.

California law has put caps on the increase of assessed values, and a full re-assessment only happens when the property changes hands.

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.

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