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Comment by ryandrake | Hacker News Reader

I want to know who's living in these places.

I work in a fairly senior role in a well known South Bay tech company (you've heard of it). I live in Livermore. (For those of you not familiar with the Bay Area, Livermore is so far away from everything, it might as well be Nevada.) Why do I live in Livermore? Because I can't afford anything within a 20 mile radius of Stanford. All over the Peninsula (and the areas in Santa Clara county you'd want to live) are dotted with $1.5M single family houses and $4,000/mo apartments. Summoning the voice of Jerry Seinfeld, "Who are these people? Really, who are they?" They can't all be stock option multi-millionaires can they? I'm doing pretty well for myself, but I can't afford to live anywhere in basically two counties. What do these people do who can afford to live down there?

The Bay Area is going to eat itself soon. There's just no way this housing situation is sustainable? What is the end game? Is this going to turn into Elysium? How will normal people survive here without affordable housing?

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Well, I live within a five-mile radius of Stanford on the SF peninsula in a single-family home I bought a few years ago. I can tell you what I've seen in my own neighborhood.

These $1.5M single family homes (and those would be far lower than the median in many towns around here) tend to be owned by double-income professionals or long-standing owners paying pennies on the dollar in property taxes who have little incentive to sell. On the higher end, I've seen folks with significant liquidity events who no longer rely on income move to Palo Alto or Woodside, or perhaps Los Altos or Portola Valley, but then you're talking $5M+ and over 4,000 ft^2 and possibly a guest house or pool house too.

In my neighborhood there's a CEO at a funded sensor chip startup whose wife works at a large tech company, a physician married to another professional, an investment banker whose spouse doesn't work, some Stanford faculty married to other professionals, a partner at a major Silicon Valley law firm, and some retirees. The retirees are often paying around 1/20th what I do in property taxes -- less than what they'd pay if they were to move to Florida or Nevada, I imagine.

To try to answer your question more directly, if you're buying a $1.5M place and putting 20% down, Zillow says you can afford the resulting mortgage on a $265K/year salary: http://www.zillow.com/mortgage-calculator/house-affordabilit...

That seems like a stretch to me, but if it's accurate and banks believe it, you could get a mortgage on that $1.5M house if each person is making $140K a year or thereabouts. Hope it doesn't need repairs or remodeling!

This is pretty enlightening. I've asked same question myself many time "who are this people?" because tech population is actually very small percentage. From your answer it appears that that people living in these 1.5M houses are not all tech works but rather new double income families and old pre-boom residents.

BTW, Zillow uses 36% debt ratio which is like the absolute max that you can possibly get mortgage (i.e. worse case scenario). That kind of debt ratio only makes sense for incomes > $250K. Once you can take out $10K as your monthly expenses, rest you can pour in to mortgage. With that calculation $260K income + $500K downpayment would allow you to live in 1.5M house without cutting too many corners. The downpayment can come in from previous house ownership gains or from equity stakes. This is probably not a good idea because you are in essence investing in already overpriced assets. There is no doubt that pressure is going to continue and bubble can only blow up so much.

>...bubble can only blow up so much.

I'm no housing bull, but this is simply not true.

Even after NYC was established, everything north of Wall Street (where there was a wall) was farmland.

I'm not a SV resident, but my visits to the area make me think Woodside is a whole other level of wealth. Like, estate level money. Is that right, or a mis-impression?

What's the hierarchy of the upper-upper end neighborhoods?

>What's the hierarchy of the upper-upper end neighborhoods?

It's not as much a hierarchy as different areas appealing to different types of people and families, with a big property size/walkability dividing line being I-280.

Let's say you have the nice problem of spending $10M+ on a house. If you want acreage and multiple guest houses and privacy and your own vineyard and stable, you might end up west of the 280 in Woodside off of Whiskey Hill Road. This is the Larry Ellison, Steve Jobs (Jackling House), Thomas Siebel, and Gordon Moore approach. Trivia: I was talking to a general contractor last week who said Gordon Moore's home upgrades/maintenance on his estate in a private valley on the north end of Woodside kept his business afloat during the 2008 downturn. If you want significant acreage, you'll need to budget tens of millions.

But in Woodside you don't get very much within walking or horseback distance, except Roberts Market/Bucks/Woodside Cafe. If you prefer the south bay with even less within walking distance, you might end up in Los Altos Hills or the hills overlooking Saratoga or Los Gatos. Portola Valley is another option.

If you want a 10,000+ ft^2 estate behind walls close to El Camino, you choose Atherton. If you want to be able to commute to SF and don't mind cooler weather, you choose Hillsborough. If you want to walk to a thriving downtown area with excellent restaurants, you (likely) lose the walls and gates and buy a more modest house for the same price in Palo Alto. The Palo Alto approach is what some Google and eBay executives have done, what Steve Jobs did in addition to the Jackling House, and what Tim Cook reportedly has done.

Howdy, neighbor! Or so I imagine, since you could be describing my neighborhood. Our 1,300sqft, 90yo cottage is, per Zillow, worth $1.3M. We bought in 1973, paid off the mortgage in the 90s, and yeah, our recent assessment notice had only a 5-digit number.

And howdy, neighbor! Yep, if you were to buy your house today you might be talking about $15,000 a year in property taxes alone....

One thing to keep in mind is how high salaries are across the board in San Francisco. According to sfgate and us news best jobs, registered nurses earn an average of 122K a year in San Jose, and dental hygienists earn 106k in San Francisco (software developers fall between these two groups).

So this means a nurse and dental hygienist couple earns a family income of about 230K a year. They probably aren't buying in palo alto, but they aren't priced out of other nice suburbs. The sad thing is that most of the high salary is dumped into the housing market (and child care, which can be 25k per kid, which becomes a huge issue when you need two incomes). I guess it all depends on how much you love living here (if you have the right setup, it actually is pretty incredible, but you truly do pay).

It's not easy, but you don't have to scratch your head and wonder "who are these people". A two income middle class couple is in striking distance.

If everyone is dual income, 6 digit salary each, where are their kids care givers going to live? Are they going to make a 6 digit salary each, too?

I can't stand dual income. I can't stand commutes now, either. That's why I left the bay area last year.

>where are their kids care givers going to live?

San Jose, East Palo Alto, parts of Redwood City, Pacifica, etc...

I'm fairly simple. I grew up 15 miles from a town of 3k in Arkansas. I came to the bay area in 2000 with $350 in my pocket.

The parts of those places you listed that I can (could) afford, I wouldn't live due to various problems like crime, neglect, etc. They aren't really a good choice for normal, simple people like me.

I think most people aren't there by choice, but by necessity. I'd much rather have the people watching my kids in a spot by choice than necessity. You may ask why that would matter, but given a little thought it'll matter you as well.

I'm an engineer married to an RN and I never thought the bay area could work for us until I started looking up RN salaries in the region. $122K is double what RNs make in many parts of the country and almost triple the salary in our current location - and this doesn't seem to be restricted to RNs - a lot of healthcare positions in the bay area seem to pay incredibly well.

Of course this may not all be attributable to high cost of living, taking a look at the BLS page on RN wages across the country, high RN salaries and states with strong union laws seem to run hand in hand.

> long-standing owners paying pennies on the dollar in property taxes

Proposition 13?

Two common solutions:

- They bought their house fifty years ago when everything was peach orchards

- Split the apartment as many ways as mattresses will fit on the floor

dotted with $1.5M single family houses and $4,000/mo apartments

What about Hayward or East Palo Alto? Or Oakland? I thought there was still plenty of cheap land in the Bay Area, but people all want to live in the ritzy bits.

Commuting anywhere from Hayward & the San L's is a parking lot in all directions. You can have a family home there, but the chance of a family life would be quite beset by traffic. You could BART to SF, but driving to the Peninsula and South Bay are gonna involve a bad time.

It's not great, but on the other hand, if you're a programmer and don't have a family, you don't have to work 9-5. Traffic usually clears up after 10am or so. Also, buying an buying a plugin hybrid will get you in the carpool lane.

Programmers who don't have a family don't want to live in Hayward or the San L's. None of their friends will live there, very few will visit, and there's nothing there to do if they did. This goes for pretty much the entire 880 and 580 corridors between Seminary and 237.

So bottom line, places where people actually want to live, are more expensive. Sounds like supply and demand to me...

Artificially constrained supply because existing homeowners are the ones who can vote, and they like seeing housing costs go through the roof.

To be fair, for the past 165 years you haven't been required to be a property owner in order to vote. Also, it wasn't the voters who took Santa Clara and San Mateo counties out of the BART District, delaying even the possibility of high-speed mass transit to those areas until state action was taken this millenium.

No, but you have to live there to vote. If a community consists primarily of homeowners, and not renters, the interests of the homeowners are what will be reflected.

Maybe that's OK, I suppose, but in this case it has meant finding a place to rent is very difficult.

For the moment those places are fairly rough, so people with plenty of cash don't really want to live there. Also, there's a pretty enormous change in culture between SF and these cities. That being said, Oakland is being gentrified pretty quickly (along with the less-glamorous bits of south Berkeley).

>I thought there was still plenty of cheap land in the Bay Area, but people all want to live in the ritzy bits.

There's lots of vacant land on the SF peninsula, but no cheap land. There is cheaper land (not the same as cheap land), as you say, in the east bay, but the non-SF tech jobs tend to be on the peninsula or south bay.

BTW, this is the first time that I've heard Belmont or San Mateo or Redwood City being described as "ritzy." :)

Interesting data point.

Around here (northern European capital), salaries are lower than the US counterparts. I would say a fairly qualified job in IT earns you around $100k (yearly, before all taxation). Houses cost around $1M outside town.

Even people with less qualified jobs buys at these prices. I would have expected $1.5M to be affordable with Silicon Valley salaries. I wonder if interest rates are that much higher in the US..?

I used to work with a guy from Belgium that was building a house. He said it was affordable because it came with a 50 year mortgage. The common length in the US is 30 years.

In Toronto, average SFH cost is now $950k, amortization period is 25 years, with most common mortgage term of 5 years, and yet the houses get snapped in less then 26 days on market, while year over year price increase is 10%.

It seems like real estate prices are increasing rapidly in every major city around the world. I hear the same story from London, Sydney, SF etc.

BTW, I would take that 50 year and 30 year fixed mortgage term any day. 30 year fixed at 4.4% seems like extremely good offer from this side of the fence.

Toronto has a large wealthy immigrant population that is parking foreign money in real estate that drives up the prices. Salaries in Toronto area do not justify $950k homes. I have also noticed people in those $950K live poorly : by that I mean they don't eat out in decent restaurants, or got to movies as often. Best Buy and Target stores are doing poorly in GTA.

Very well said, that is the argument against high valued real estate in relatively modest income large cities such as Toronto. With low or no disposable income other sectors of economy are getting affected. I would also argue another reason for high prices are the greenbelt laws, by which government has effectively restricted land available for development.

Most of the people I know who have bought real estate recently are scraping by and using their basement apartments as mortgage helpers. Another issue I have noticed is the lax standards in issuing mortgages, there are companies writing employment letters for $1-2k in order for couples to qualify for mortgages. Banks and government is wising up but the damage has already been done.

A typical suggestion is that your monthly rent is 1/40 of your annual income. So if you earn $160k you can afford $4k rent. That's pretty realistic for a dual earner household. Even for one earner it's doable, though of course above average. But really many people are probably spending most of their money on housing and not saving anything.

> "What is the end game?"

It appears to be: force the industry to move somewhere else.

Whether that's a good plan or not is moot. Decades of votes have underscored it repeatedly. That the situation is unsustainable seems to be the entire point.

I'm increasingly surprised people still insist on the region. I'd have thought more companies would have moved on by now.

You know, there was a time when Silicon Valley made real, actual things - electronics, aircraft, etc. The engineers that worked there, were normal middle class folks making normal middle class salaries. It would be better all round, yes, if all the web companies making nothing for billions, were forced out.

>>>> The Bay Area is going to eat itself soon. There's just no way this housing situation is sustainable? What is the end game? Is this going to turn into Elysium? How will normal people survive here without affordable housing?

It seems to me this is a cyclical issue. I'm guessing something major has to happen like the market crashes again, or the tech bubble bursts. This would make a lot of these high rent places either have to lower their rent, or go out of business.

Once they lower their rent, I'm sure more middle income people will move back into the city. This of course does not solve the affordable housing issue. As is the case in most gentrification situations, it just pushes lower income people out into the outer burbs, and this is already happening. I don't see any solution for more affordable housing. It seems this war has already been lost.

Who are these people? Probably in their 20s, high paying job out of school, don't give a hoot about saving money and just live it up while the going's good. I can't imagine anyone else going for $4000/mo apartments.

Or, multiple people sharing a place.

I'm extremely confused as to how people aren't able to find anything for less than $4k/mo. It didn't seem all that unusual to find places for mid 1000s if you're sharing a place and not living downtown, and this is when I was looking less than a month ago. I ended up going with a 2.7k place downtown to myself, junior 1 bed.

It's more than I wanted to pay initially, but 4k minimum seems like a bald-faced lie.

Article doesn't say 4K is minimum. It says 350 sq ft is going for $2000 and 1 bed room apartments near Twitter headquater is going for $4000. If you are sharing for mid-1000s then total cost of apartment comes to ~3500 which is quite inline with what article says. BTW, where I live, you can get 3 bed room apartment with a garage and view of mountains for $1700 and commute of < 0.5 hr to major tech companies. And I thought THAT was too high.

Denver?

Out of curiosity, where do you live?

Denver or Austin seem likely possibilities

So, a double income family, each person earning $250,000 with proceeds from a previous house sale for downpayment, can manage quite easily, no?

Pre tax income: 41666/month

20% Down = $300000 Borrow 1.2M @ 4.0% = $5728.98/mo

This looks quite doable.

Heck, with half that income, you could do it!

> each person earning $250,000

Well back to the original question, who are these people earning $250k each? Is this common? Most people in the tech sector I know (ok not in SF) make about half that and I cant' say they are not productive or are stupid. Is that the valley of CEOs and upper management? Foreign investors buying up houses and not living in them just as a way to store their wealth...

  Foreign investors buying up houses and not living in them just as a way to store their wealth...

I'd wager that this would be more the case in places like New York, or London.

This :

http://www.vanityfair.com/society/2013/04/mysterious-residen...

is quite an interesting read on the subject.

Major outlier, no? That would be quite a wealthy family. You're basically talking two company CxOs living in the same house. I can see maybe a few households in that situation, but what of the rest of the hundreds of thousands of people who live up and down the Peninsula?

Only in the Bay Area do people say "Well, if your household is making half a million a year it's affordable!" It reminds me of the Wall Street Journal disconnect last year [0] regarding taxes (those single mothers making $250k a year are really suffering). The Bay isn't the real world by a long shot.

I just moved away from the Bay Area for this exact reason. I went from making $120k a year to $85k a year, but in Washington I can get a decent family home for $150k. The Bay Area can't come remotely close to matching that kind of deal, even with the ludicrous salaries.

[0] http://i.imgur.com/bdgZa.jpg, http://online.wsj.com/news/articles/SB1000142412788732368960...

>The Bay isn't the real world by a long shot.

Neither is Manhattan. From the NYT in 2009, and prices for schools and child care and real estate have only gone up since then:

http://www.nytimes.com/2009/02/08/fashion/08halfmill.html "Five hundred thousand dollars — the amount President Obama wants to set as the top pay for banking executives whose firms accept government bailout money — seems like a lot, and it is a lot. To many people in many places, it is a princely sum to live on. But in the neighborhoods of New York City and its suburban enclaves where successful bankers live, half a million a year can go very fast."

A lot of this is real estate and private schools, of course. You could get a 5br/5,000 ft^2 house in Green Bay, Wisconsin for 400K: http://www.zillow.com/homedetails/3318-Whittier-Ct-Green-Bay...

While a 5br/5,000 ft^2 prewar apartment (not even a single-family home!) in Manhattan would be $24M, and that's with a kinda small and not very attractive kitchen: http://www.mironproperties.com/NY/NYC-Apartment-38737-Upper-...

Many folks, like you, are better off moving away from the Bay Area and taking a salary cut if they don't already own a house and would like to buy one.

NYC is very expensive, but $24m is hyperbole. Corcoran listings for 5+ bedroom townhouses in Manhattan begin at $2.3m, still a very princely sum: http://tinyurl.com/l7hukd6

(If you're willing to live outside Manhattan, in one of the "outer boroughs", prices drop dramatically.)

Um, I think you left off a zero. :)

If you use that Corcoran link you provided and restrict your searches to townhouses in the $2.3-$2.7M range with 5br, you get only Harlem, not Manhattan: http://tinyurl.com/nvftwqm

Harlem is in Manhattan.

Ah, didn't know that. I'm a non-NYC dweller and thought it was a separate borough.

This is a joke, right? Reliably earning $250k is not easy even in the tech industry (bonuses and stock options are not even remotely reliable and hence should never be factored into the affordability of a mortgage payment). But on top of that, now you have to marry a spouse also making $250k. You're saying you have to borderline be a gold digger.

Yes, you could do it but it's really a bad strategy. You are essentially betting all of your surplus income in to your house which is by any sane measure is already extremely overpriced. The worse thing is that the cause of this housing bubble is entirely artificial as per the article. It's not that there is no more land to build right around Google and Facebook campuses but that current residents are actively preventing new construction. This can't last longer. Eventually pressure would be too high for local authorities to change laws and with one stroke of pen bubble will burst. There too many other black swans such as earth quake or building new public transport or train system etc. I can only feel pity for those double income families who are working very hard and sacrificing seeing their kids etc just so they can throw their hard earned money in to this madness.

> Eventually pressure would be too high for local authorities to change laws and with one stroke of pen bubble will burst.

Yes, if you believe that ~100 cities in the Bay Area are somehow preventing housing from being built with laws, then certainly yes.

Ok, the replies to this make me wonder - I thought a two income family in SV was usually making in the range of $300k. Are the respondents below from SV?

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