Soaring housing costs forces talent to flee Silicon Valley
cnbc.com
cnbc.com
It is hard to make the argument that people are fleeing silicon valley when real estate demand keeps reaching new highs.
My rent is about 40% of the going rate for the identical apartment above mine. This has several consequences. I literally cannot afford to move. For another, it would be difficult to fit another child in the place we have, so we're not having one. And it's more difficult to hire people from outside the area because they can't find affordable places to live.
I'd try to do a van-plus-PO-Box-plus-health-club situation but my girlfriend would probably never go for it.
There are more affordable places (still expensive, but less so than SF/Silicon Valley) within reasonable commute distance of the core of the Bay Area. If you've got good bay area job prospects, you might consider initially living on the peripheries until you can build up a cushion that lets you move further into the core.
((current rent under rent control from 10 years ago)/(current number of rooms))(current number of rooms + 1)
Instead it's going to be:
(current number of rooms + 1)(current rent per room in SF when you decide to move)
In other words, if you don't lock in an extra room now and sublet it until you decide to start a family, then you're shit out of luck.
One question, that isn't often discussed, is how many homes are bought to live in vs. bought as investments and rented. Either way, monthly mortgage or rent is going up, but I wonder how much of the movement in the market is due to real estate investors vs. home owners.
Or bought as investments and not rented out (I hear a lot of anecdotes about this).
More and more, NYC, London and SF are the real estate equivalent of buying gold, but way more profitable. The most interesting thing about this property my brother recently staged is that it was on the market for about $5-6 million until just before the 2008 crash. After the crash, it and many many apartments just like it skyrocketed in value as the economy crumbled. Basically lots of very very rich people, often Russian and Chinese, but not exclusively those nationalities, expatriated money to SF, NYC and London to buy real estate as a relatively safe store of value.
A good friend of my father (who lives in Brazil) is worth several hundred million and he owns an apartment in NYC worth several million that no one lives in. Between he and his family, they probably use it for at most one month per year.
That only counts for part of the problem. Something like 5-10% of the SF housing stock to which rent control laws is applicable is kept off the market because landlords prefer not to deal with the hassle of tenants rights. I forget the exact figure.
It's not that "nobody goes" because it's too crowded. It's that the people you want don't go because it's too crowded with people you don't.
Those of us in tech probably know more of the latter.
Only once I moved to small town did I realize how much my quality of life was degraded by the long commutes, the over crowding, and the general scramble for access. Now I have 10min commute, up to 20min driving for any errands or shopping, and can't imagine moving back to the traffic jungles of a major city anytime soon. Especially since an average large townhouse in my neighborhood goes for $250K compared to $400-600K in Chicago.
It used to be that in small town America the only decent technology job you could get is by working remotely, or through the local university. Perhaps I got very lucky, but my current company[1] works with the biggest global companies, and I get to ship more software and work with much more diverse technology (most in the mobile space) than in my previous 10 years combined.
All I'm saying is that if are frustrated with Silicon Valley, or any other big city, don't assume that is your only option. I was pleasantly surprised when I landed in Charlottesville, VA.
[1] Its called Willowtree, and we are hiring, but I don't mean this to be recruiting spam, so look it up if you're interested.
To be serious, though, threads about various transit innovations tend to be dominated by people who strongly prefer urban living and can't imagine why anyone would want anything else. Your case study is a nice example of why there are good-natured people (engineers even!) who simply prefer a different style of life. It doesn't prove that there are no externalities to suburban living (nor urban living), but we should all remember to be thoughtful that different people may actually enjoy different lifestyles.
Charlottesville, VA is likewise more of a small city than a small town, where it's perfectly practical for people to walk and bike to commute and do errands in the older neighborhoods. Probably more so than in much of Silicon Valley, in fact. That's because walkability is as much a consequence of development style as urban scale, and much of Charlottesville was built out before than automotive era.
Even San Francisco can barely be called urban. It's absolutely dominated by automobile traffic, especially outside the tiny downtown core. I've never seen such fast-moving traffic on such wide streets in a city ostensibly hailed as walkable. Typical SF buildings are 2-3 stories at most, nearly all have attached garages or parking, and transit is hilariously awful.
Much less Silicon Valley. It's... suburbia. Try to walk from Google's HQ to Apple's. Try to walk anywhere, really, outside of a narrow strip near Stanford. What exactly does the OP feel is urban about Silicon Valley's car-dependent zoning?
This is still my favorite piece on the subject (long but good): http://techcrunch.com/2014/04/14/sf-housing/
Also if you are planning to move to Seattle, you should follow the ongoing saga of Bertha. Always a fun topic of conversation: http://en.wikipedia.org/wiki/Bertha_%28tunnel_boring_machine...
Purchase prices of 40+ years' rent signify a mix of speculation, regulatory corruption, trophy buying, and weird beta effects (i.e. amplified correlations with the national market). For example, Manhattan real estate has a beta of about 3.0, which means that a 50% swell in national prices drive Manhattan real estate up by 3.375x.
When I live in São Paulo, Brazil (which isn't exactly cheap and going out can be as expensive if not more expensive than San Francisco), my dad and I split the rent on a 2700 ft^2 penthouse duplex with 4 bedrooms, 3.5 baths, deck with barbecue pit, dining room, living room, family room. It was one block from Avenida Paulista on Alemeda Campinas. We each paid around $1300 to cover rent and the building fees.
San Francisco is stupidly expensive. The landlord trolls sue to block every single possible development that could alleviate the housing problems because it allows them to earn increasingly more from their real estate with little to no additional capital investment.
Buying at current levels would only make economic sense if you expected rents to keep going up. Right now, buying is a bad move unless you expect the extreme rent situation to worsen (rather than mean reverting) in the long term (20-30 years). Given that it'd take just one genuine progressive mayor to crush the NIMBYs and allow new development, I think that that's a bad bet.
Well, in an alternate reality where the City and County of San Francisco is a mayoral dictatorship (and using a suitably special definition of "progressive", though that's somewhat tangential) this might be true.
Of course, in that alternate reality, you'd still need the mayor with that preference to somehow get elected in San Francisco, which might require even a bigger divergence from the universe we live in than San Francisco having the kind of political structure which would empower a mayor alone to impose the changes you describe.
There's a phenomenon in older apartment buildings on Captiol and First Hills where a large number of renters are barely able to pay rent, or are already past that point and have stopped paying rent. Evicting them just means adding to Seattle's homeless population (the other 1%).
This doesn't apply to the shiny new condo you'd be living in. It applies to the ugly, squat, 95-year-old brick apartment building across the street.
And what do you do if your neuroprocessor isn't powerful enough to get you a good job in the first place? If you worked hard but couldn't become more than just a laborer? If you've never been able to afford even a car? Then suddenly you lose your job but your landlord doesn't kick you out.
This only applies to those who are incumbent in their current residence.
Any NEW renters, or those looking to move from their current place are indeed paying a new heightened rent.
The costs for even small places is ridiculously high.
I have 3 children and a wife that I support. Even with the high wages offered from Facebook or Google, our quality of life in Austin was far better than it could ever be in Silicon Valley.
I can work remotely from anywhere; why would I artificially lower my quality of life to live in SF proper as long as remote work exists?
IT is taking off in the Tampa/Orlando area, and Miami has a bit of a startup scene that's coming up to speed.
I suggest spending a couple weeks in the area, drive around, see what you like and what you need to live near (I don't have kids, but when I do, I'm home schooling. I work remote, so a commute does't matter. My housing selection was based solely on recreation, or rather, where I could park my sailboat).
I lived in SF, then moved to Athens, GA for 6 years, then back to SF. I have a lot more disposable income in SF because while my rent doubled, my salary tripled. On top of that, anything with an MSRP set at a national level (cars, bicycles, guitars) is a much, much smaller percentage of my monthly income. On top of that, I can contribute 3x as much to my retirement as I did before. It's win/win/win.
Truth be told, it's actually a fantastic place to live, I just missed living in the city.
Alpharetta, for example, is an hour away from Athens, closer to the City of Atlanta, has a heavy tech presence, and a median household income approaching $100k in a state with a median income half that.
It's more expensive than Athens, yeah, but it's also not Silicon Valley expensive.
While we can make all sort of arguments and analysis on the cost of living, what did it for me was exactly what you stated..."quality of life". Being in software many of us are fortunate enough to be able to live in the most expensive area in the country. However, it doesn't do a damn bit of good when you're miserable due to all of the traffic, crowds and annoying people who surround you.
Being a native I never thought I'd leave. Now, I'm confident I'll never go back...our quality of life is so much better here in Colorado. I would never suggest anyone move there unless they were single, in their 20's and in the technology space. For that group of people, it'd be a great experience. For us older family types, unless you're a total city person, the area sucks the life out of you.
I think it's great that you're happy in Colorado, and there's certainly a lot to love about the state (go Broncos!) -- but definitions of "quality of life" vary, and some might actually include some of the things that you didn't/don't like about the Bay.
Here's a great listing I noticed this morning
2 beds 2 baths 827 sqft
"Bring your tool belt, this property needs some TLC! Great location, this property has much potential! Close to schools, shopping, and freeway access."
$900,000
https://www.redfin.com/CA/Albany/815-Santa-Fe-Ave-94706/home...
Granted, what was there was nice enough (all 1100 sq/ft of it), but over $1M for a 2/1 ... it's just insane right now. It was listed for $749k. The overbidding situation seems to regularly bring in multiple (as in 10-20) offers for a house.
That's a 10.4% annual return per year for 40 years.
That's better than the 8.2% returned by the S&P 500 over the same period.
I think Realtors must be farking psychopaths to think that this should be valued at such...
However, anyone with a crap-ton of money who doesnt blink at a price like that for this, well -- they should jsut feel like lucky, fortunate people.
That's nuts.
Here's a link:
http://www.sfgate.com/business/networth/article/Bay-Area-a-b...
It sounds like they'll go up to 43% for a "jumbo loan" (thats not just mortgage), and according to the article, it can go higher if the buyer is strong in other ways.
With interest rates for jumbo mortgages probably a bit above 4%, that would leave a two income household with 200-300K in income enough to purchase the median priced house.
I'm not saying it's an appealing idea, just that it isn't impossible.
Think about it this way. Suppose you make $30,000 a year, and your housing costs are $10,000 a year.
Now suppose you make $200,000 a year, and your housing cost are $100,000 a year. Aside from that, prices in the higher cost area are maybe 10-20% higher.
You might actually have more disposable income in the second scenario, along with more opportunities to enjoy it. This is why I think SF is still a pleasurable place to live for people who substantially exceed a certain threshold. That threshold is very high, though.
Recent Nobel prize award was about $1.2 million. Median prices in Palo Alto is about $2.4 million so the affordability is 2.0 Nobel prizes / house in Palo Alto.
The caveat is that you have to be a solo prize winner, otherwise the award amount will be split.
Seattle - Yes (but also quite expense)
Austin - Yes to a less degree
Portland - Maybe.
All of these are great cities with plenty of dev jobs. You really need a strong CS program to build around if you want think about not moving to Silicon Valley. University of Washington totally fits that bill, as does University of Texas- Austin, but I would have to guess that Portland has a good local university (but I'm not familiar with it from afar like the others)
Portland has good programs and an OK tech scene. A lot of them are poached/contracted by Seattle firms, since it can be cheaper to pay for a contractor's hotel than it can be to hire a local. The wage differential is that big between the cities.
FWD.us agitating for immigration reform for potential future employees should take a backseat to lobbying for improving local living conditions in the Bay for current employees who already live in the Bay.
Median rent is now $4,225 in San Francisco.
Instead I'm enjoying the vibrant and feverishly growing tech community of Charleston, SC and the quality of life advantages that come with living in Conde Naste's #1 rated travel destination.
I suspect as housing costs in the Bay Area continue to rise, an increasing number of engineers will come to the same conclusion.
Of course, if your desired end-game doesn't include escaping the paycheck cycle, it is really a wash anyway.. so you may as well go where the fun jobs are.
New borrowing rules went into effect that reduce the amount that can be borrowed for a given income. As interest rates rise, the approvable loan amount will be trimmed still further. Even if you have stock winnings, most people still need to borrow to buy a home. So buyers are looking at a declining amount that they can bring to bear in the market.
However, sellers conditioned on ever rising prices aren't willing to accept lower prices just yet. Some are starting to reduce prices, but recently there have been multiple homes that don't sell and then quietly roll off the market in the 'hot' areas.
Thus there is a market standoff, and buyers who want a house realize they can simply not afford a house here. Some react to that by leaving, a trend that is accelerating.
It will be interesting to see what happens as interest rates go up, and reduce borrowing amounts still futher. If the future will bring a decline in prices or long-term stagnation - it's anyone's guess.
I relocated from London to Barcelona 3 years ago to do remote freelance work. The cost of living is lower here with a good quality of life. There is lots of interesting work in London and its a good place to gain experience but I've got no plans to go back.
If one assumes a similar historical probability between looking for a house and buying a house, it follows that if more people are looking for houses outside of SV, more people are also buying houses outside of SV.
At the very least, it shows that people in SV are more interested in housing markets outside of SV today than they were a few years ago, even if they don't move there.