Silicon Valley Poverty Is Getting Much Worse Amidst Insane New Tech Wealth Boom

http://www.businessinsider.com/poverty-in-silicon-valley-2013-3

by rmah • 13 years ago

30 75 13 years ago

matterhorn• 13 years ago

Interesting that they don't just move somewhere else. In any case, lower your taxes, reduce state and municipal spending, and reduce state regulation of business. A federal repeal of PPACA would also be very helpful. I can't imagine living in California.

potatolicious5• 13 years ago

> "Interesting that they don't just move somewhere else."

"Somewhere else" in the USA is the difference between "when can I try out your product?" and "you quit your well-paid job at a stable company to DO WHAT?"

Entrepreneurship can be a lonely life, do you really want it to get lonelier?

The concentrations of people who "get" startups in the US is also closely aligned with its expensive cities: SF, NYC, Boston, Seattle, etc.

tzaman2• 13 years ago

I live in Slovenia. In a village. My living expenses are less than $1500 per month (a family of 5), all bills included (phone, internet, heating, food, water and electricity and child care). While I do have a dream of coming to Silicon Valley some day (I guess it's every hacker's dream destination), it's just not cost effective for me at this moment. In english: I can't afford it.

So the question is, why people even bother living in one of the most expensive regions in the US/World? What's wrong with living in some remote village, as long as basic life necessities are available? I know people (most of them senior folks) that live in our capital (Ljubljana), and whine about not having money while owning a house in a city center that's worth more that they could spend in a lifetime should they choose to live in an inexpensive countryside.

kiba5• 13 years ago

Because the city have more of everything you want. The reason why everything cost more is a demand and supply issue.

mbesto3• 13 years ago

Simple. There are certain characteristics to business that require real in person relationships. In fact many of the businesses that exist that you never hear of on HN are exactly like like this.

SV is great for 3 things:

1. Insane amount of capital to growth (and to exit big)

2. Access to $120k/yr+ salaried Stanford/MIT grads (among others)

3. Tech-savvy early evangelists

If your company doesn't need these things to survive, stay far away from SV. It's not worth it. There are however other areas that possibly have all 3, but not to the extent of SV. The ones I've personally identified are Austin (US), London (UK), Stockholm (SE), and Berlin (DE). What you get in return is cheaper cost of living (London and Stockholm, you just need to live further outside the city) and therefore cheaper wages.

ahoyhere6• 13 years ago

I take issue with #2. Lots of people don't want to live in SF/SV… especially given the way the cost of living eats up those "piddling" $120k/yr salaries. Living elsewhere and working on your ability to hire/manage a remote team would be a way to serve an underserved market -- great tech talent that values community & family ties, and economical use of their money.

MrMan• 13 years ago

you have the right idea. it's crazy that the internet of all things is supposed to force people to move to a certain place.

SV is behind the times.

davidw• 13 years ago

> you have the right idea. it's crazy that the internet of all things is supposed to force people to move to a certain place.

It's complicated though: people are still people, and interact with one another on a personal basis in ways that are higher bandwidth and more nuanced than can be done on line. And with lots of people doing stuff in the same place, the potential for cross-pollination and other random things emerging goes up.

This book talks about the issues involved and the economics behind them, at length:

The New Geography of Jobs: http://www.amazon.com/dp/B008035HQQ/?tag=dedasys-20

I found it quite interesting.

That said, I did my time in the Bay Area and don't feel like going back.

potatolicious5• 13 years ago

Because cities exist for a reason: it is in many cases necessary to gather similar people together to do business. Import/export businesses are located near major ports for obvious reasons. Textile manufacturers are located near clothiers for obvious reasons. Food wholesalers are located in farm country, etc etc.

Technology rarely exists in a void - it is at its most useful when applied to dissimilar fields. See for example Uber, which has applied technology to the field of taxicabs, or AirBnb which has applied technology to the previously pencil-and-paper field of private B&Bs/renting.

When you're in a technology business that needs to interface with an established industry, you need to be where they are. Fashion startups in the US want to be in New York, rather than the Valley, for example. We are not even close to the point where the guy teleconferencing in from his country house is on the same footing as the guy who walks through the front door to have coffee.

tzaman2• 13 years ago

I think you missed my point. You're right about being the connection point. But that doesn't really mean or do anything for you if you're poor or homeless, does it?

nakedrobot22• 13 years ago

I live in Prague. Rent for a family of 5 including all bills is $1100 (ok, we live somewhat modestly, although we live near the center of the city, near the metro and tram stops, and 10 minutes walk from a castle!)

It makes me sick that people in Silicon Valley think you have to live there to get investment and run a start up.

cglace2• 13 years ago

I also find it counter to the whole "lean startup" philosophy everyone espouses. You would think being lean would apply to their cost of living as well.

nahname• 13 years ago

Lean doesn't mean on the cheap. It is about focusing on only the most valuable parts first. There is value in being around like minded peers. It is energizing just to be in the valley. There are millions of early adopters there. This may seem like a small thing, but it can be the difference between being eager for the next day of work or being eager for the end of the day.

kiba5• 13 years ago

Solution: let silicon valley build more housing.

rayiner2• 13 years ago

Seriously, this. It's one thing for Hong Kong or Manhattan to have high housing prices. It's something else for a fucking suburb to have high housing prices.

kiba5• 13 years ago

We'll have one hell of a housing boom, and there will be more of everything. At least until we run into infrastructure issues such as providing enough water for everyone. Or perhaps we will have cogged roadways. (Although that probably mean we can start building subways that pay for itself.)

Also, it will let entrepreneurs and startups live on ramen noodles more.

bengoodger• 13 years ago

I don't believe communities in SV would sign onto this.

One important reason is the lack of core infrastructure like a centrally planned transit system. The thing to remember about the bay area is that it's not one city like NYC. It's a number of smaller cities and counties each with their own local governments, rules and constituencies. See San Mateo and other counties opting out of BART. Another example are various communities with maximum density regulations.

This is the kind of thing where you need a strong central hand to force these issues if you want your community to scale, but it's not clear that any local community would cede that power.

typicalrunt• 13 years ago

Funny that these numbers are touted as being bad. In Vancouver the median price of a home is around $900k, we have high taxes, high fees for everything (cellphones etc.), rents are around $900-$1000 per bedroom.

And the kicker of it all is that the average family salary is a laughable $70k.

potatolicious5• 13 years ago

As a Vancouver native who's since lived in Toronto, Seattle, SF, and now NYC, you guys really do not have it that bad.

The ratio of rent to purchase price is low, which means for those who cannot afford to buy (which is, at this point, nearly everyone who isn't an oil sheikh or Chinese industrialist) the renting path is not bad at all.

The rent "per bedroom" is not $900-1000. It's only $900-1000 if you want to live the urban lifestyle in Yaletown or the West End. For bedrooms in suburbia the proportional rent (i.e., per bedroom) is lower. Which is to say, the run-up in Vancouver rent (what little there has been) has mainly impacted those who can afford it most (read: those without children).

Median family income in San Francisco is a "laughable" $72K, while studios run north of $2500 and one bedrooms bust the $3000 per month ceiling. That is a wealth gap. The demographics in that city have become "tech workers" and "everyone else", with even basic subsistence in the city becoming untenable for many who have been there for decades. Vancouver is (delightfully) free of such a stark dichotomy.

Seriously, you guys live in a veritable paradise - economically, socially, and yes, in rent too. It gets much, much worse out there.

JPKab4• 13 years ago

"For bedrooms in suburbia the proportional rent (i.e., per bedroom) is lower. Which is to say, the run-up in Vancouver rent (what little there has been) has mainly impacted those who can afford it most (read: those without children)."

Why is it that people are expected to live in the suburbs when they have kids? I find this to be a uniquely post WW2 North American view, and a stupid one at that. For those of us with kids who would like to live a walkable life style, these rises in rent are not limited to "those who can afford it most."

seanmcdirmid2• 13 years ago

I thought you guys were the victims of lots of Chinese speculation coupled with lots of visa hedging?

Just a bit to the south, Seattle is a bit cheaper.

api5• 13 years ago

This is one reason I don't live in The Valley, and I am by no means poor.

I'm not an economist, but it really seems like there's a very perverse economic distortion that takes hold when the relative wealth of a region exceeds a certain level. The problem is emergent from two facts:

(1) We almost always finance real estate on credit.

(2) We use real estate as both a store of long-term savings and an investment whose value is heavily leveraged and is dependent upon the value of neighboring real estate.

As a result, real estate acts like a sponge. When a region accumulates wealth beyond a certain point, it results in runaway real estate hyperinflation. This in turn forces people to put more and more wealth into real estate, as well as tempting people to engage in real estate speculation. This in turn feeds the cycle, and drives up rents for non-owners.

This does several bad things. It prices out the not-already-rich and destroys the engine of class mobility that often created the wealth in the first place, prices out artists and others who contribute to culture in a less financially-centric way, and soaks up wealth that could have been used more productively. Instead of founding the next startup, a significant chunk of money ends up sitting in real estate to prop up the leverage bubble.

Edit: I thought of what might be a more economically-correct way of saying that. Real estate is a liquidity trap.

Finally, it's a ticking time-bomb. If the region's fortunes ever falter, everyone ends up massively underwater. Bay Area residents be warned: Detroit once had the highest average wages in the USA. It was the Silicon Valley of its time. Detroit had other problems the Bay Area isn't likely to have, but some significant fraction of its woes can be tied to the collapse of its real estate market and all the perverse follow-on effects this has. When real estate starts to go south in a big and long-term way, it really ruins a region's finances.

P.S. I can't help but shake the feeling that the only winners from the above arrangement are banks.

kiba5• 13 years ago

Growth makes all problems go away, or more like delaying it until it starts to hurt.

api5• 13 years ago

What I wonder is: by pricing out the not-already-rich, does real estate hyperinflation actually destroy the engine of youthful ambition that created the success in the first place? I mean, $3000/month rent for a one-room apartment makes it very hard to take the risk of founding a startup at 22.

JPKab4• 13 years ago

Very intelligent analysis. Take a look at Manhattan, or the entire Washington, D.C. metro area for an example of this.

api5• 13 years ago

Manhattan has this problem, but it also has a much deeper bench of economic diversity. DC has The Fed, which is unlikely to go anywhere this century.

Finally, both Manhattan and DC have good transit systems that link them to larger outlying areas. So for NYC you have stables of lower-rent areas in Brooklyn, etc. In DC you've got Northern VA and up toward Baltimore.

yummyfajitas3• 13 years ago

There is a third fact which also plays an important role - land use regulations.

Logistically it's fairly easy to expand the supply of housing, particularly cheap housing - build bigger buildings and fill them with tinier apartments. But good luck getting the legal permissions to do this.

pfedor2• 13 years ago

Zoning laws seem like one example of a regulation that genuinely prevents the tragedy of the commons. If one person built a twenty story house on their property, that person would get rich and all their neighbors would be slightly worse off. If everyone did that, the business owners and VSs would move somewhere with less traffic and fewer neighbors, the software engineers would follow and Palo Alto would become just another slum.

fzzzy5• 13 years ago

Very interesting comparison to Detroit. Those factory jobs used to pay extremely well compared to the cost of living.

api5• 13 years ago

This is a great read:

http://www.amazon.com/Detroit-Biography-Scott-Martelle/dp/15...

There are definitely some major differences, but there are comparisons as well.

The big comparison is how Detroit was mostly a one-horse town -- automobiles -- and it was economically ruined when that industry changed. Keep in mind that the industry didn't die... there are more cars now than ever. It just shifted in such a way as to unseat Detroit as the Silicon Valley of the automobile revolution.

Of course Detroit had other problems: race relations, corruption, etc. But those are problems that can be dealt with if a region has a good economic base. If it would have kept its Silicon Valley of the auto crown, I don't think they would have been big issues.

(Edit: Nowadays, Detroit is actually a potentially attractive contrarian place to go. Start here: http://omnicorpdetroit.com/blog/ )

When this happened, wages collapsed. When that happened, the leveraged real estate pyramid fell. When that happened, tax bases collapsed, infrastructure collapsed, crime soared, and everyone left. Kaboom.

This scenario could definitely happen to The Valley. Another scenario that could lead to a slower decline would be if SV completely priced out everyone but CXO-level people. This would transform it into a closed circle-jerk of high-ego CXO types, all of whom would be convinced (as such personality types generally are) that they've got everything all figured out. The Valley would become like a giant IBM-in-the-70s or Microsoft-in-the-90s, and the market would eventually leave it behind.

10dpd• 13 years ago

I find it interesting that no one commenting here actually lives in the Valley at the moment (probably due to the time difference, its around 7am.

If you are into tech, the Valley is the best place in the world to live right now, the price is being driven up by demand for a reason.

michael_miller• 13 years ago

Part of this is likely due to building restrictions. For example, Palo Alto has a 50 foot building limit [1]. If developers were allowed to build 20-story apartment buildings, it's very likely that housing prices would plummet.

[1] http://www.paloaltoonline.com/news/show_story.php?id=27136

fzzzy5• 13 years ago

The quality of the available housing in the Palo Alto/Mountain View area (crappy 50s/60s construction) plus the obscene prices make me sick. I just moved from Mountain View to escape this twisted market. I'm extremely lucky I work for a company that does a really good job of supporting remote workers.

arbuge• 13 years ago

Silicon Valley works great if you can tap into it to raise seed/VC funding.

If not you're pretty much screwed. You're in California, which is a bad place to do business in general - think insane regulations and a 10% state income tax. And in the Valley in particular, tech workers will cost you significantly more than in other parts of the country, let alone the world.

sologoub• 13 years ago

Homelessness is an extremely complex issue. As is poverty. This article seems more sensationalist than anything. They lumped several issues together here to create content that sells.

Three key issues raised: homelessness, racial inequality (referring to Hispanic wages), and general income distribution inequality.

General income inequality and the racial flavor touched are likely related to several factors, such as education/line of work and workforce mobility. While you can ensure that people have better jobs through education/training programs, combined with job placements (both extremely non-trivial), people from poor areas will always gravitate to wealthier areas. This has nothing to do with racial/ancestral traits or anything other than people seeking employment in the wealthier areas that are more likely to provide employment opportunities. So, effectively, no matter how good your programs are, you will always have some group that needs help. This is why it's important to focus on a long term, sustainable approach to education and training. There is no silver bullet here, unless you can magically impart that knowledge on every living human.

Homelessness is a completely different can of worms. If you have ever worked with long term homeless you will know that only some actually want to return to "normal" life. I put the word normal in quotes because the perception of what normal shifts. In a conversation that stuck in my mind, one person I spoke to referred to how I live as slavery to money/worldly possessions. I'm sure this is not the sentiment shared by the majority, but it illustrates the complexity of the issue. If we truly pride ourselves in having a free society, we then cannot force a certain way of life on people. What we can and should do is offer support and a way back if people so choose.

Personally, I'd like to see us provide more incentives to wealthy individuals and corporations in supporting educational and other programs to help. An extra tax benefit for keeping the money in US and a solid dose of public support and encouragement. Somehow as a society we love stories of billionaires donating money for causes in Africa or another impoverished place. This public opinion is a strong incentive. If it shifts toward more support at home, the money will follow.

joonix• 13 years ago

There's a great irony in the liberal/conservative (left and right) dichotomy. On the one hand, you have left-leaning people who build their platform on the premise that they are champions for the poor and lower/middle classes and multiculturalism, while the right-wing is perceived as only looking out for the wealthy white people.

And yet, I can't help but compare one left-wing enclave to a right-wing one.

The Bay Area always shocked me as to how segregated it is, with whites and upper class people living in their suburbs with almost all blacks living in Oakland and the lower-income whites living in suburbs that are oppressively distant from job-centers. And the Bay Area has a housing affordability crisis, while at the same time being surrounded by plenty of land and low-density building that could be built-out to increasing the housing supply and thus affordability. But, this doesn't happen because the local incumbent populations are extreme NIMBYs.

NYC deserves a mention, too, because while they are limited on space on which to build, there's still lots of low-rise stock that can be replaced with much denser development, but gets blocked due to NIMBYs and historical protections. I can sympathize with wanting to preserve the historic aesthetic, but we could at least find a few locations to build a massive development to disrupt the housing supply and bring down prices.

I compare these with the so-called right-wing bastion I grew up in, Houston, TX. In Houston, whites and blacks live in close proximity, they shop at the same stores and malls, they actually interact in daily life. Wealthy neighborhoods are directly across from lower-income neighborhoods. More importantly, housing is affordable. There are almost no restrictions on the housing market: you can tear down and build almost anywhere. Middle class families can afford to buy houses.

I'm not arguing for one philosophy or the other; nor am I saying I'd rather live in one place or the other (I'd live in the Bay if I made $200k, I'd live in TX if I made $50k), I'm only pointing out the irony and that a lot of these political diehards are full of crap.

There are simple solutions to the affordability crisis in SV and SF, but NIMBYs and protectionists would rather see the poor suffer rather than risk a decline in their property values.

api5• 13 years ago

In heaven, conservatives are in charge of economic policy and liberals are in charge of social policy. In hell it's the other way around.

brown• 13 years ago

It's 7am PST, and most of the comments here are "I don't understand you silicon valley people, that doesn't make sense". So, I'll share my two cents.

I'm from a modest background in the Midwest. My first tech job was in Seattle (better than SV, but still not "cheap"). I then lived in Beijing, Boston, and Manila before coming to SV. I spent 1 year in Palo Alto, and now 2 years in San Francisco.

I was originally VERY against it. My wife basically dragged me here kicking and screaming. I've always thought of Silicon Valley as this giant bug zapper, where people are lured in by the promise of extreme success, and then get zapped by a culture of 95% failure at startups.

Now I'm a huge fan. Here are the main two reasons:

1) First, a mitigating factor. The salaries are actually pretty well adjusted for cost of living. You're getting a fair deal compared to other tech cities. Market forces are doing just fine.

2) The number of people in tech here is simply unparalleled. Head and shoulders better than any other city on the planet. That might not seem important, but it is surprisingly powerful. You have access to a huge network of people. Whether you're trying to get a job at big co, or doing a startup, access to a network of people turns out to be a significant contributor to success.

PG's essay on SV is spot on. I scoffed when I first read it, but he is right. (http://www.paulgraham.com/siliconvalley.html)

The main problems as mentioned by the original article:

1) Homelessness – IMO, this is due to lack of proper institutions for mental illness and substance abuse, not housing. SF is a ridiculously liberal city, and there is plenty of low income housing.

2) Real estate prices – If you are buying a home today, it is very painful. However, due to CA's limited growth property taxes, it is quite affordable for the majority of residents who have been living here for life. That results in a clever form of progressive taxation.

akgerber• 13 years ago

That's not progressive taxation. Most long-term homeowners in expensive areas of California do, in fact, own at least one extremely valuable asset, which makes them wealthy. Since these wealthy people are paying low property taxes, other people need to pick up the cost of city services: younger, poorer folks with less home equity (the form most middle-class wealth takes) or none at all. That sounds like regressive taxation to me.

pshin45• 13 years ago

There's a startup idea in here somewhere...

Perhaps an Airbnb exclusively for new startup founders which offers affordable long-term housing in SF/SV in return for a small amount (1~2%) of equity?

Given that this is a huge problem that all of us here face or have at least had to contemplate, and will only continue to get worse, it seems worth trying.

RougeFemme• 13 years ago

It's unfortunate that there aren't more jobs in lower-cost areas that the poorer people could move to. Then the poor and unemployed would have jobs and shelter- just as important - the rich would be forced to pay their service workers living wages. And yes, this is simplistic and there are the sociological/ issues of why people dont move. . .and the impact of the increased service wages on the economy. . .and the fact that the curret economy sucks so we can't have a mass migration to the land of the jobs.

Silicon Valley Poverty Is Getting Much Worse Amidst Insane New Tech Wealth Boom

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