The San Francisco Rent Explosion Part III

http://priceonomics.com/the-san-francisco-rent-explosion-part-iii/

by nikunjk • 11 years ago

93 104 11 years ago

venomsnake• 11 years ago

I don't understand. Why are there so many light colored areas in the city where rent is half/third of Mission.

Non SF person here. Can anyone explain? With exploding demand it should have trickled there by now ( Bayview, Excelsior)

cjensen• 11 years ago

Bayview has a reputation of having extreme amounts of crime. At least, that's my perception as someone who lives in the Bay Area.

SandersAK2• 11 years ago

SF and the bay area in general have done an astonishingly bad job of updating mass transit to handle growth. I used to live in NY and thought the MTA was stupid and short sighted, but since moving here, they come off as geniuses compared to BART etc.

resu_nimda• 11 years ago

What large cities have mass transit that is not astonishingly bad, stupid, and/or short sighted, in your opinion? Maybe it's actually just a really hard problem?

sampo6• 11 years ago

Kind of ironic, that one of the most degenerate and backwards-looking of the first worlds cities when it comes to urban planning and transport, happens to be the location the most forward-looking people in web tech and startups.

ryanSrich3• 11 years ago

If you work in SOMA, Bayview and Excelsior don't seem far at all. Why not just bike or walk?

lnanek2• 11 years ago

Mission is where all the cool night life is. Big companies right on Market and in financial district like Microsoft's Yammer office. SOMA is where the startups are.

There are some startups in the Dogpatch further that direction towards Bayview, but already the commute time for most employees is double if you do that due to having to switch from BART train to MUNI train which is much slower and less frequent, and god knows what serves most of Bayview.

Buses where you would get mugged and stuck in traffic maybe? I'd be happier in the East Bay at that point as long as BART was near. The few times I've tried the bus system, half the time the bus is full or late. I own a car, but traffic is ridiculous, so I don't consider it usable for commuting.

mdeeks• 11 years ago

We (MSFT/Yammer office) are most definitely NOT in the financial district (god I wish). We're in the tenderloin/civic area where you regularly see addicts shooting up on the stairs as you walk down to bart. It is one of the worst areas of the city. Though it is getting nicer now that many companies are moving in.

fennecfoxen• 11 years ago

god knows what serves most of Bayview.

Well, the T train runs down the edge of Bayview as far as the Bayshore Caltrain station. But it's reasonably slow and kind of awkwardly routed for the time being (it goes past the ballpark and along the Embarcadero before reversing down Market). Maybe that will change when they open the central subway in the future.

lastofus• 11 years ago

Hunters Point (part of Bayview) is also a superfund site. That might be a bit of a turnoff as well...

bradleyjg3• 11 years ago

You'd think so, but in Brooklyn they have a Whole Foods built right above a superfund site (the Gowanus Canal). Sufficiently hot real estate markets can make for some strange situations.

http://inhabitat.com/nyc/wp-content/blogs.dir/2/files/2013/1...

mmohebbi• 11 years ago

That's due to a combination of crime, local businesses (e.g. fancy coffee shops and bars), and access to commuter shuttles. You can see some of these in heat map form here:

http://www.trulia.com/local/san-francisco-ca/

arjie• 11 years ago

I live in the Excelsior. I live just off Mission Street, and 10 mins on foot from BART, so it isn't all the public transit (the 44 and 52 go to Glen Park BART from where all trains are 10 mins up to Montgomery, the 14 is a slow alternative downtown). My personal theory is that it's because most of the places to hang out here aren't the kind that's popular in the Mission.

I also walk down these streets frequently late at night to buy stuff from the Safeway. I don't think it's very dangerous.

aetherson• 11 years ago

I currently live in the Outer Mission and previously lived in Excelsior, and I second all this.

Basically, these are the last places in SF that are:

1. Relatively affordable.

2. Relatively close to BART.

I live a five minute walk from Balboa Park BART and my mortgage is $3,000 a month for a 2BR1BA house with garage that I bought two years ago. Previously I lived a 10 minute walk from Glenn Park BART and my rent was $2,000 a month for a 2BR1BA house with garage (albeit now a few years old, so I'm sure the rent is higher now).

The area is pretty safe. It's not like a rural small town or like what I kind of assume Pac Heights is like, but it's probably safer than Inner Mission or SOMA, and both I and my wife (a small woman) feel safe wandering around singly after dark.

So why is it relatively cheap? Well, first, inertia from a point when it was less safe -- you can see some of the progression of the neighborhood by looking at the houses. Recently remodeled ones do not have metal security gates on their doors or bars on their windows, but ones that haven't been touched in 15 or 20 years definitely do.

But also, it's just not a very hip neighborhood and doesn't have the density of bars/coffee shops/bicycle stores that other neighborhoods do. It's a little farther from the nightlife centers of the city.

Ultimately, I think these areas are rapidly gentrifying as well, but they're behind the curve of the rest of the city.

choppaface• 11 years ago

One of the things missing on the map is elevation. FiDi & SOMA are effectively surrounded by Twin Peaks, Russian Hill, Pacific Heights, and Portrero Hill. Those hills contribute to increasing commute times as well as cultural boundaries.

infecto• 11 years ago

Its all to do with transportation and nightlife. Bart runs down market street and then south through the mission. A lot of people work near market street. Easy commute. The mission also has a strange mix of gentrification. It has a big mix of locals and new tech workers. With the influx of tech workers there is also a lot of nightlife.

Now if you live in a place like sunset or anywhere in the southern part of the city you are kind of stuck. The southern part of the city you will have to take a bus. The bus can be a terrible experience, if you live on the edges expect a 1hr 1way commute. This is just a rough guideline, not always true. Sure sunset has muni trains but its still slow because the majority of the time muni is above ground on the road and does not have right of way.

I live in outer richmond. I think the pricing data is skewed here due to seacliff.

TLDR; transportation sucks. Most of the areas that look cheap require you to have a car and drive.

7Figures2Commas2• 11 years ago

Investors who are pouring money into Bay Area startups might as well be investing in Bay Area real estate, because real estate is ultimately where a lot of their money is going.

As San Francisco startups like this one[1], which has an all-in cost of $146,000/year per employee and an insane rent to revenue ratio of 15%, demonstrate, investors are largely footing the bill for the explosion in residential and commercial real estate costs that the boom they're funding has helped create.

[1] https://news.ycombinator.com/item?id=10049808

Dwolb• 11 years ago

Do you know who the money is going to? Is the market heavily fragmented or consolidated?

It'd be interesting to know the economics for the owners and then the city as well (with taxes).

Balgair6• 11 years ago

Bingo! This is the real reason rents are bananas. The question is: when will investors stop this?

Anyone with some brains can figure out Oakland, or heck, American Canyon is just as good a place to start-up. At these rents, even Portland is looking good. The 'community' of other entrepreneurs that SF expounds as the reason to start-up there has it's price and its possible all the smart money is leaving it behind. Let the other investors pay the landlords while you sell the next big widget.

meritt2• 11 years ago

Portland already has a massive tech scene and is experiencing the same (percentage-wise) rapidly-rising rents.

rco87863• 11 years ago

when will investors stop this?

when they stop making $$ from it.

Xcelerate• 11 years ago

I've always wanted to live in San Francisco for at least a few years, but this data (combined with the fact that my girlfriend steadfastly refuses to move outside of the south) is slowly turning my interest towards places like Chattanooga. Is San Francisco really the only serious place for startups, or are there other options that I might be happy with ("settle for")?

adventured• 11 years ago

No, SF isn't the only serious place for start-ups.

NY, Seattle, Boston, Northern Virginia / DC, Los Angeles - are all excellent start-up destinations depending on your needs.

There are second tier start-up locations as well that can be quite nice, such as the research triangle in North Carolina or Dallas - Fort Worth. If you're in energy, perhaps Houston (it continues to boom); if you're in biotech / pharma, perhaps San Diego. Denver and Portland can be nice for lifestyle purposes. And so on.

killerdhmo• 11 years ago

Austin is probably the only place that's considered "the south" to the previous commenter's point.

kelukelugames• 11 years ago

It really depends on what you are looking for. I live in Seattle and I can tell you that the quality and quantity is much greater in the Bay Area.

bigdubs2• 11 years ago

NYC, as an example, is becoming more and more a strong place to start a company, but it isn't on equal footing yet.

The thing with starting a company is its very rarely just you that is involved in the enterprise; you need developers, you need designers, you need bd people. People that do these things for startups tend to have a slightly different slant or skill-set than people that do them for large companies. As a result, it is a distinct advantage to be near large population centers that have a wealth of this talent.

One of the contributing factors to this is the organization that spawned the very website this is posted to; YCombinator based in SV and companies doing a class move to the bay area for it. The gravity is strong here.

Can you start a company outside the valley? Yes. Is it going to make things much more difficult for yourself doing so? Probably.

Another contributing factor to the dispersion of startups that hasn't been mentioned is remote work. It is possible to have an office in SF and keep yourself and your family elsewhere.

colinbartlett• 11 years ago

Can you start a company outside the valley? Yes. Is it going to make things much more difficult for yourself doing so? Probably.

I would love to see data on this one way or another. I find it very hard to believe that it is quantifiably more difficult to start a company outside of Silicon Valley. But you are not the first person to state that.

somedudethere2• 11 years ago

San Francisco Bay is at the top of the startup scene. There is nowhere else were you will find the number of investors or resources (meetups, groups, talent, funding circuits, etc.)

I'm from Chicago and while the startup scene there is pretty solid (cheap rent, large city, big financial center for funding) SF Bay is in a league of its own (maybe NYC also).

That doesn't mean you won't find investors, resources, etc in other cities. Is basically the same as asking whether you should go to a top 10 school or go to a top 50 school. You can have the same amount of success at both opportunities its just how much effort you put into it.

Moving to silicon valley won't make your business successful, but it will give you access to the tools and connections you need to help yourself. These same tools exist elsewhere but you might have to search a bit harder.

rco87863• 11 years ago

Been an engineer in and out of SF for the last 6 years.

SF/Bay Area is truly head and shoulders above anywhere else for startups. Like Shaquille O'neal's head and shoulders.

That said, it doesn't make it impossible elsewhere.

tibbon5• 11 years ago

While not to the exact same scale, rents in NYC and Boston have been doing similar. In Somerville, apartments are roughly double what they were 10 years ago by my estimates. Salaries for the average person haven't kept up. My partner and I clear 160k/year, and affording a 2-3BR apartment is still not easy given student loans, saving for a 20% home down payment, etc. We are currently in a 1BR to make that happen, but the lack of space is killing us. The only way I can see ever owning property is if my options at some company end up being worth something.

My question is not if things are going up (they are), but what can we do about them. We are going to destroy our neighborhoods, culture and opportunities (yes, even for us software developers) if these things keep going up like this. Unless none of us ever want to have more than a 150 sq/ft bedroom that we rent (no kids, room for hobbies, etc), we need to find a solution.

I'm really sad for my friends who aren't developers, because its impossible to keep up. I don't want everyone to be a developer. I don't think that is culturally good, or a solution. I want artists, academics, electricians, caregivers, medical professionals, and people of all walks of life in my city.

Look, we've got some incredibly bright minds on here. What is a realistic, forward looking and innovative way we can work on this? We're aiming for the moon, hyperloops and self driving cars... but maybe a few people can try to figure out how to make it so that cities aren't absolutely terrible cost-wise to live in?

NEW THOUGHT: Yes, it is supply and demand. I wonder if someone can start a company whose mission is to quickly create scalable affordable housing in major cities? Something involving tricks for greater density, new building techniques, focus on efficiency but also quality of life... and doing it fast. We need this in 2 years, not 20. How can we build 20,000 units of housing within reach of someone in their 20's in the middle of the income range in each Boston, NYC and SF?

evanpw• 11 years ago

Increase supply (e.g., build more housing) or reduce demand (e.g., find a way to make it less important for people who want to work together to live nearby). Those are really the only two choices.

tibbon5• 11 years ago

In Camberville, we're increasing supply... of luxury condos. So far, I haven't seen it make a dent in the market. Fort Point in Boston went from having almost no housing to hundreds of new units... yet I called one of the buildings and found their 1BRs to be $3,200/month.

The public transit infrastructure, and road infrastructure, in Boston and SF is insufficient to make living further away ok for most people. But again, that basically just creates neighborhoods of software/biotech people and nothing else, which feels terrible.

Tiktaalik2• 11 years ago

The one other thing is to dramatically improve public transportation connections so that areas of the region that are currently not convenient for many people to live in become viable neighbourhoods.

shimon• 11 years ago

Transit improvement is catastrophically stalled. Improved rapid transit options could plausibly expand the area where Boston-area workers can live and have a reasonable commute by 100 to 300%. But these require approval from (especially in MA) dozens of towns. Plus we can barely keep the subways operational.

nosuchthing4• 11 years ago

Vertical space, and or sedan sized mobile homes.

ala Volkswagen's Westfalia

Honda Element conversions

Toyota's old mini-van (MasterAce ?)

http://www.designboom.com/design/cornelius-comanns-bufalino/

http://eliomotors.com/ but in camper form?

tibbon5• 11 years ago

I do think building up is a pretty good idea. I just wish it all currently in the Boston area wasn't luxury condos. And the existence of those luxury condos hasn't seemed to deflate the demand on other housing yet. Maybe in time?

nilkn2• 11 years ago

Cities are expensive for a relatively simple reason: the number of people who want to live there exceeds the number of open spots.

Two immediate solutions:

(1) Create compelling reasons for someone to not want to live in this one particular city. For instance, allow one to work remotely. There are hundreds if not thousands of amazing cities to be enjoyed, not to mention the vast stretches of rural land for those who don't want to live in a city at all.

(2) Build more housing units in the city. Eliminate zoning restrictions. Stop worrying about protecting the existing homeowners and pay more attention to everyone else.

Note that both of these are mostly matters of just convincing people to jump on board the plan. People in general are resistant to remote work (especially outside the software world, but even inside it), and some cities like San Francisco are extremely hostile towards a vast number of proposals to just build more housing.

When you combine the desire to compress an entire industry into one city with a refusal to build more housing units, what result could you possibly expect?

seizethecheese• 11 years ago

(1) Create compelling reasons for someone to not want to live in a city. For instance, allow one to work remotely.

A lot of folks who work remotely prefer the city since it gives them all the amenities that an office usually would like food (restaurants), gyms, cafes and an environment with a lot of people.

chimeracoder• 11 years ago

(2) Build more housing units in the city. Eliminate zoning restrictions. Stop worrying about protecting the existing homeowners and pay more attention to everyone else.

These three things are not synonymous - or at least, they need not be.

For example, New York is building a lot of units. (A lot of them happen to be luxury units which often sit vacant since they are used purely as investment vehicles by foreign entities, but that's a separate problem.) The real issue is that Manhattan is an island, and there's only so much you can cram into 33 square miles (though they're working on squeezing every last cubic inch out of that). They're also, of course, building at an absolutely unbelievable pace in Brooklyn, Queens, and even the Bronx[0].

San Francisco, on the other hand, has been incredibly slow to build more inventory (and also build upwards), compared to the amount that the demand has increased. This may be partly due to zoning issues, but not entirely, and the situation that San Francisco is in is not typical of most cities.

Houston is famous for having no zoning code, but New York has a very extensive zoning code[1]. In fact, the market for air rights in New York is quite complicated and fascinating[2]. You can build more housing without scaling back zoning restrictions or removing them entirely; there's just not always enough will to do so in every city.

[0] not sure about Staten Island, but... well, let's not talk about that.

[1] http://www.nyc.gov/html/dcp/html/subcats/zoning.shtml

[2] https://en.wikipedia.org/wiki/Air_rights

tracker17• 11 years ago

Expanding on #1, if you already have multiple offices remote/home workers are less of an issue in reality. You already have to make coordination efforts. As long as people show up as available in link/hangouts and respond during regular hours it shouldn't be as much of an issue.

In addition to this, you can save a lot of money... paying someone 80% more in SF or NYC, vs letting them stay in Phoenix or Austin and splitting the difference is a great option... you get very senior people for mid-level pay (vs in office). I'd much rather see $150k in Phoenix, than $190-210k in NYC, or $215-240k in SF... especially given Sr. positions in Phoenix tend to cap out around $110-130k.

Of course I'd love to keep east coast hours on the west coast ;-)

kitsunesoba• 11 years ago

A third factor at play that certainly can’t be helping anything is how a handful of companies and individuals own the majority of real estate and use their vast fortunes to snatch up anything new the moment it appears. Ownership should be more diversified.

spiralpolitik2• 11 years ago

You could also approach the problem from the other end. Have the state offer a reduced business tax cut rate for open offices and employing people in underdeveloped cities. Similarly at the other end of scale increase business taxes for companies that insist on expanding in overdeveloped cities.

This is common in Europe where business parks are setup in underdeveloped areas to encourage investment from outside. Usually these are coupled with reduced tax deals as it's in the governments interest to have people in the area in work rather than claiming unemployment.

jhpriestley• 11 years ago

A stiff land tax within major cities would probably be the most comprehensive solution. It would incentivize intensive use of land, leading to denser housing (compared to a property tax, which incentivizes the opposite); it would also make urban land a less compelling investment, leading to lower prices.

nosuchthing4• 11 years ago

Taxing used property in dense areas would likely just increase the costs further, although I assume that might be intended in the long run to push for more use of vertical space.

More useful would be a tax which increases the longer a vacancy exists on unused lots, vacant or secondary apartments/housing, and property sales that have been unsold for X number of days.

Real estate speculation and housing as financial instruments are basically contemporary feudalism.

bradleyjg3• 11 years ago

If you have a limited amount of area and many many people that want to live there, something has to give. You can build up (which SF largely refuses to do) but even that has its limits and its costs.

The larger answer is changing things so not everyone wants to live in the same place.

Figuring out how more people could work remotely while remaining productive would have a huge payoff in this area. But I don't think that's particularly amenable to a wholly technical solution. It's more of a problem of applied psychology in the form of management techniques.

From a different direction, considerably better urban and regional mass transit would help. In the bay area, that's made much more difficult by the relatively small geographic size of SF proper as compared to the metro area. Compare NYC which incorporated its inner suburbs a century ago. Though on the upside at least all of the bay area is in one state.

sampo6• 11 years ago

You can build up (which SF largely refuses to do) but even that has its limits and its costs.

To be honest, San Francisco is nowhere near any reasonable density limits.

    Population densities:

    San Francisco            7 000/km²
    Paris                   21 000/km²
    Manhattan               27 000/km²
    Kowloon Walled City  1 255 000/km²

Building with Manhattan density, SF could have 4 times its current population. If it wanted to.

bbcbasic2• 11 years ago

1. Live and work somewhere sane.

2. Buy some popcorn.

3. Wait for the bubble to burst.

4. Actually you don't care if the bubble will burst because you are not living in SF.

rconti• 11 years ago

Today it doesn't matter. As long as money remains cheap (and the Fed keeps insisting on it), it will fuel property prices in SF and other desirable places. If you buy a place in San Francisco in 2 years, THEN maybe you'll go negative for a bit.

After the last bubble "burst", you think you could scoop up some cheap property in SF? Nope. Maybe prices dropped 10-15%, and now they're higher than they ever were.

People are flocking to cities, which means the suburbs are the ones that get hammered when prices drop.

sampo6• 11 years ago

quickly create scalable affordable housing in major cities?

Even in Finland, with relatively good salaries for construction workers, and high quality buildings insulated to withstand Finnish winters, building an apartment building usually costs under 2000€/m2 ($165/sq-ft).

It is not the construction that makes apartments expensive, it is the price of land in a good location.

So the problem is mostly political. Existing residents usually strongly oppose building new homes for new people in their neighborhoods. Especially if you'd like to build higher and denser than the area previously was. And the potential future residents do not have a right to vote, only the existing residents can vote. And even if you can buy a piece of land, city politicians/bureaucrats may not give you permission to build as much square footage as you might want. Because the want to "preserve the character of the neighborhood".

So usually cities do all kind of kicking and screaming to resist growth.

trhway• 11 years ago

Especially if you'd like to build higher and denser than the area previously was.

because typical "higher and denser" coupled with bottom-line optimization by the developer results in making crappy, less livable environment. More people means need for more transportation, more parks ... - the developer in cooperation with the city could build parks inside/on-top the new high-rise, build new transportation options, etc.., yet it would cut into the bottom-line. Classical tragedy of commons. So existing residents resist more load on the existing commons, yet i think it would be different if new construction was creating more commons and/or really improving existing.

tracker17• 11 years ago

Is that to own, or rent? If that's rent, then that's insanely high... If it's to own (assuming modest mgt fees), that's not too bad.

Right now my rent in a fairly nice place in Arizona (Tempe) is $1400/month. Similar places in SF/NYC are 3-4 times that much.

Animats• 11 years ago

Firefox/Mozilla now has a new location on the Embarcadero facing the Bay Bridge. They must be really profitable.[1] (Go to the Google Maps link below, and take a look around.) Those deals with Hello and Pocket must be paying off big-time!

[1] https://www.google.com/maps/@37.7895641,-122.3885496,3a,19y,...

paulpauper• 11 years ago

That's why it's smart that millennials are living with their parents longer, using the saved $ to eventually buy a home instead of making the landlord rich. It's not immaturity - it's adaptation.

myth_buster2• 11 years ago

Wow, this got dropped from front page pretty fast. I thought the discussion was engaging.

Previous discussion: https://news.ycombinator.com/item?id=8174583

seiji3• 11 years ago

Sometimes HN seems to have an anti-interseting-topic filter doesn't it?

myth_buster2• 11 years ago

Especially controversial topics... I think there may be a factor based on points to comments ratio...

The San Francisco Rent Explosion Part III

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