The Housing Market With Nowhere to Go but Up

http://bits.blogs.nytimes.com/2014/03/02/the-housing-market-with-nowhere-to-go-but-up/

by samsolomon • 12 years ago

54 71 12 years ago

bits.blogs.nytimes.com

melling• 12 years ago

“It’s a block away from all the tech shuttles,”

Sounds like the secret to making any area an attractive place to live is by making it covienent to mass transit. So, add more [fast] mass transit so people can live in more places.

fennecfoxen• 12 years ago

Egads. The capital expenditures.

wyclif3• 12 years ago

And don't forget the infamous SF NIMBYs.

skybrian• 12 years ago

Buses don't require a lot of capital, which is why there are tech company shuttle buses and not tech company train lines. It would make sense to make public buses work better (more dedicated lanes, more expresses, and so on).

Also, tech companies are already outsourcing shuttles to contractors. Those contractors could run other lines if someone were willing to pay them.

If it made sense for the tech companies to pay the city to run buses then they probably would. The question is how to provide better service while serving the general public.

I wonder if a company like Uber would eventually start running buses?

kiba• 12 years ago

At the end of the day, the solution is straightforward and clear: build more houses.

The only problem is that humans in SF don't want more houses, especially high rise housing.

rwmj• 12 years ago

The solution is also "work remotely from somewhere nice". I like the short walk to my garden office every morning. In summer I can pick some fresh fruit and veg along the way for lunch.

The company I work for (Red Hat) has a huge contingent of remote workers. We work on IRC, by email and (oh the irony) Google Hangouts.

discard• 12 years ago

I also work for Red Hat. While the degree of remote working varies by department, it is substantial, appears to occur at many hierarchical levels on the management chain, and seems to work out pretty well. Also occurring in some cases, and somewhat related, is working out of a 'satellite' office rather than one of the major offices of a particular country. I'm surprised that more tech companies do not allow or encourage such arrangements. The arguments in favor of generally prohibiting remote working strike me as rather flimsy.

muzz3• 12 years ago

The only problem with your comment is that construction is under way at a record pace (well, since 1906)

wyclif3• 12 years ago

I could write yet another boring comment about how hypocritical and stupid longtime SF residents are because they complain about rising housing costs or being priced out while simultaneously voting to prevent more housing from being built, but I'd rather ask a serious question:

Why do all these Bay-area startups and tech juggernaughts insist that all of their employees squeeze into housing on the peninsula? Of course many of their employees are going to have to work in SF but why is it so impossible to conceive of having a distributed, remote employee base? There are many successful tech companies (and YC startups) that have done this. It would ease the pressure on housing supply/demand, and also make salaries more attractive since engineers would be paid an SF salary but have more earning power by living outside the bubble.

SamReidHughes2• 12 years ago

The companies move to where the good employees want to live so that they can hire and retain good employees. I hope that explains that for you.

dllthomas6• 12 years ago

The alternative proposed was "distributed, remote employee base", which - if it worked - would let you hire and retain good employees wherever they wanted to live (even if they didn't all want to live near each other). So your explanation alone doesn't address the issue.

LogicX4• 12 years ago

Which came first? Do people want to be in SF - or are they there because there are jobs?

Anecdotal, but I know people who live in SF who would rather be back in Myrtle Beach, SC - as soon as there's a similar opportunity or a remote work opportunity for them.

The quality of life and work-life balance is not in SF for them.

wyclif: I agree that more companies will solve this problem with distributed, remote teams - which is what we're leveraging to attract those folks to the Beach. http://WhyNotTheBeach.com

wyclif3• 12 years ago

It doesn't explain that at all. Not all of the "good employees" want to live in SF, especially if they want to own a home or have children. The point is that it's not necessary to ask people to live in places where there's all this stress surrounding finding a place to live, finding a good school for your kid, and having a decent quality of life.

jhonovich• 12 years ago

Hypothetically, if they could move/live wherever they wanted, what percentage of the people who live in SF/SV would choose to leave? Are we saying none or something trival like 5% or 10%?

btipling• 12 years ago

but why is it so impossible to conceive of having a distributed, remote employee base? There are many successful tech companies (and YC startups) that have done this.

And there are some that are even trying to solve that problem by making it easier to remote, like ours (Floobits), and our YC competitors: Screen Hero, Hackpad, Sqwiggle. So there are a lot of options for making remoting easier. I know Zapier has a remote team and those guys are doing fantastic. At Floobits we're entirely remote. And really working from home is the best work experience I've ever had, I don't ever want to have to commute back to SF (I live in the east bay). I've been taking and picking up my daughter from school , I've taken her to the library once a week ever since and I've gone to all her ballet lessons with her. Something I couldn't do when I worked in SF.

I hate that every day working people are priced out of their city, and a socially conscious company could consider remoting as a solution. Good for the community, good for their employees and good for the company.

LogicX4• 12 years ago

I'm hoping some people start to wake up and realize they don't have to be in SF or Silicon Valley to be successful entrepreneurs or technologists.

Between the harsh northeastern winter, and whats happening in San Francisco, we're making a big push to attract folks with low cost of living and high quality of life in Myrtle Beach, SC through http://WhyNotTheBeach.com.

With so many companies becoming more and more open to remote workers, remote teams, remote offices, I think more cities will have the opportunity to attract highly paid, highly talented individuals for more quality of life reasons instead of congregating in tech hubs.

It just comes down to demonstrating that the resources are available locally, or have advanced enough online so that you're not at a disadvantage. One argument to being in SF is everyone is competing for talent, funding, etc. from the same sources. There are investors and talent elsewhere who would love to get in on opportunities, and I think that can start to turn the tide.

As a transplant from Boston, MA to Myrtle Beach - I was overwhelmed after being in the Boston startup scene and involved with TechStars for 4 years. Boston certainly isn't at the SF level, but I still believe there are compelling arguments for those in Boston, NYC, Philly, SF and elsewhere to consider alternative cities with low cost of living and high quality of life. Time will tell!

polarix• 12 years ago

Way easier to recruit employees 50-500 in the valley. - Chris Dixon, http://www.youtube.com/watch?v=fGjGu9gFfO4#t=2119

dannyr• 12 years ago

"I'm hoping some people start to wake up and realize they don't have to be in SF or Silicon Valley to be successful entrepreneurs or technologists."

Yeah I agree.

But being in the Bay Area helps a lot.

If I move to Myrtle Beach, would I be surrounded by people like me who are into startups or will I be one of the few?

It is not even the local resources or quality of life. San Francisco is a poorly-run city. Startups and entrepreneurship, however, thrives in spite of it.

For better or worse, the mindset of the people living in the Bay Area sets it apart. That is something that is hard to recreate.

LogicX4• 12 years ago

This is one of the unique opportunities I see about Myrtle Beach: There are so many professional, successful, educated northerners - both young professionals and retirees, which are moving to the area, that they're bringing the mindset with them. They come here looking for the same like-minded folks; and they're finding it due to the # of transplants.

Yes, for now you'd be one of the few who are into startups. But that was also the case in Boston when I first moved there in 2006 (albeit not starting /as/ small), and I was able to watch the startup community grow and thrive over the next 6 years

dfc2• 12 years ago

WhyNotTheBeach.com? Answer:

  * The first link in the list of what you "offer" is broken
  * Hurricane Hugo
  * Hurricane Hazel

LogicX4• 12 years ago

Fixed the link; thanks!

You're correct -- on average, there's a major hurricane every 25 years: http://www.dnr.sc.gov/climate/sco/Education/facts/historical...

jarek• 12 years ago

Oh, good thing SF doesn't have any upcoming natural disasters it is ill-prepared to deal with.

steven20123• 12 years ago

My wife and I are technically 1%-ers, and we could not oompete enough to buy a house in SF. We gave up and moved to the peninsula. As the article described, one house we bid for had 20 bidders. We bid over $200k above asking, and we were 10th out of 20 bidders. The winning bid was $400k over asking.

But am I resentful? No. It's the reality of the situation. For those that are bitching and moaning about not being able to live in SF, you just have to deal with it.

And I'm quite confident at some point, the prices will abate. The best cure for high housing prices are high housing prices.

And if they don't, then the problems that the article describes still won't come to fruition. Price inflation will creep through to all aspects of life in SF. It's not going to be a complete vacuum where only house prices increase and nothing else. As house prices increase so will the price for everything in SF, including wages.

For example, housing prices are too expensive for teachers to live in SF? Teachers from the East Bay, etc will commute to SF, because salaries will increase, especially salaries for private school teachers. If you're not aware, SF is amongst the worst in terms of schools and even worse at placement of children in schools. A co-worker had a list of approx 15 schools he wanted to send his child, and none of them were selected for him. He was forced to send his child to private school, and as demand increases, so will salaries. Restaurant prices will increase, and so will the salaries of waiters, etc.

dllthomas6• 12 years ago

"The best cure for high housing prices are high housing prices."

Provided you have the possibility of actually building more (and/or denser) housing at a sufficient rate.

potatolicious• 12 years ago

That's one solution. The other is that housing becomes such a huge liability to local commerce that people will just leave.

Housing prices are like high taxes or burdensome regulation - they add to the cost of doing business, and in the extreme case people will just get out.

The end game if the Bay Area won't allow more housing to be built is that the industry will move out of necessity. This is already happening, though not at scale.

Oculus• 12 years ago

From my limited understanding, I take that this is the issue in SF. There is a lot of regulation issues with building denser housing thus the shortage in supply.

steven20123• 12 years ago

That is not necessary. If prices get so high that no one wants to or can afford to live in SF, then the prices will naturally decline.

I'm old enough to be a crusty dot-com boom veteran. Rent prices were about as crazy as they were today, except it was more in the South Bay than SF, so no one appeared to care as much. My 2 br apartment in the South Bay went from $1700/month to $2300/month after the lease was up. We had to move out and into a shitty rental in Sunnyvale for 2 years, when the rent prices started to drop because of the dotcom bust.

So, the supply-demand equation is very real, and at some point, prices will abate. Nothing goes up forever.

_greim_2• 12 years ago

Yes but hysteresis effects likely come into play where actual price points can't keep up with ideal market price points when the ideals change quickly. E.g., residents would balk at a $30 Chipotle burrito (I'm guessing here) even if that's the price it would need to be for a Chipotle owner to break even. By the time residents update to the "new normal", the damage is already done.

bilbo0s• 12 years ago

I think you may be missing the point...

there would be no Chipotle if the housing prices kept going up.

Or if there was, it would be a tourist stop and would certainly make its money on volume. Basically, it would be like that god awful McDonald's on the Champs Elysee.

In any case, the price for it's burritos would, in all likelihood, not rise to an unaffordable number. At the same time, local residents would not make up the bulk of its customers.

mindslight• 12 years ago

Don't worry, Chipotle will weather the storm just fine. However, the good burrito places will have a very hard time.

It makes me cringe that one would even think of Chipotle as an acceptable place to eat in fucking San Francisco.

rdl2• 12 years ago

I wonder what the impact of a marginal $150-250k/yr single person who lives in a high-rise and rides a company shuttle to work (or wfh) is, on city services.

Roads would be a big one, but if someone uses a company shuttle and/or drives at off-peak hours, it's not that big a deal. Mass transit and roads are sized for peak-time use.

Water (although SF residents use about 10% as much water per person as people with lawns in the Central Valley), electricity (although at PG&E tiered rates, this is probably a profit center), garbage disposal (charged at cost-plus). Unlikely to depend on the "safety net" services in any way, and the marginal impact on police/fire is low as well (private security for the building, compliant with fire codes). Without children, there's no impact on schools, and I don't know of many 150k+/yr income friends who would send their kids to SF public schools.

Indirect expenditure via the private sector seems like the greatest impact -- eating in restaurants, buying in stores, etc. -- but sales tax revenue should account for most of that impact, as well as increased profits for businesses, employment, etc.

supersystem• 12 years ago

Infrastructure generally doesn't scale linearly. So while one person doesn't have much of an impact, at some point you're going to have to invest a lot of money scaling.

rdl2• 12 years ago

Yes, but it also usually has declining marginal cost across most of the curve. It's complex. It definitely gets expensive at the margin when growth requires new plant, but the big problem is when growth is unpredictable and may end; SF has a pretty safe long-term growth plan built in, so making 100 year investments (at muni bond rates!) is safe.

I just don't see even 100k rich non-services-intensive people as being likely to cause a problem. What SF should do is get rid of the previous stupid payroll tax and Ron Conway/Ed Lee's even worse gross receipts tax and institute an income tax of n% on residents or those working in SF. Maybe make it progressive (just set it as x% of someone's California state tax bill?, maybe +10% so it'd be about 1% of gross income?).

Then, having 100k people making ~$300k/yr (reflecting capital gains plus wage income) and consuming <$100/yr in city services in some towers along the eastern side of the city would be awesome.

$300mm/yr in extra tax income would do a lot.

greenyoda3• 12 years ago

"Nowhere to go but up"? How quickly we forget the last housing bubble. If the price of housing goes up faster than the salaries of the people who want to buy it, eventually we'll get to the point where demand will drop sharply: someone with a $100K income and $100K in student debt just won't be able to get a mortgage for a $2M condo. As demand drops, housing prices will drop, and people who bought into the market at the top, sure that their investment could only increase in value, will start to panic.

There are other possible scenarios for a housing market plunge in SF. For example, if California tries to sharply raise taxes to help pay for their huge government infrastructure, tech companies may decide that they don't want to be in California anymore. They're already hedging their bets. For example, Google has a sizable presence in NYC. When the first big tech company announces that they'll be moving out of Silicon Valley, the housing market will take a dive.

And it's not impossible to run a big tech company outside of Silicon Valley. Microsoft and Amazon seem to be doing OK in the Seattle area. The higher housing prices go in San Francisco, the easier it will be to recruit people to go elsewhere.

encoderer• 12 years ago

You didn't read the article and it's obvious. Just delete your whole comment. Trust me.

repsilat• 12 years ago

"Nowhere to go but up"? How quickly we forget the last housing bubble.

The title was an obvious pun, referring to the need for high-rise development (which was touched on in the article, though it wasn't the focus.)

greenyoda3• 12 years ago

I did understand the pun, but most of the article was actually about how quickly the prices in the area were rising, how people were paying rapidly increasing amounts of money for crappy real estate, how they were offering cash payments, payments above the asking price, etc. In other words, he was writing about a real estate bubble.

nerfhammer• 12 years ago

People shout "bubble" every time they hear about a price increase these days. Education getting more expensive? Education bubble! Actual "bubbles" are ALWAYS driven by speculation - people buying assets they have no intention of using but instead quickly flipping to a bigger fool / another speculator. The mid-2000's housing bubble, the 1980 gold bubble, the dot-com stocks, the dutch tulip craze all had this in common. Misuses of the term "bubble" do not. I could be mistaken but I have not seen evidence that the SF housing market is driven up by speculators.

The mid-2000's housing bubble was characterized by rising prices and rising supply. The SF area housing supply is artificially and stupidly constrained by highly restrictive popular regulations in the bay area. There is no reason to believe that it will suddenly collapse, because people actually need these homes and not because they're making trying to flip it to a bigger fool. Nor can they build new ones (which would undermine the price floor).

Even if all those regulations were to suddenly go away all at once (wouldn't that be nice?) what you would probably see is gradual price normalizing over many years and you would probably still ultimately end up with a price level above normal.

In a bubble the price collapses all at once from speculators all trying to dump the asset that they didn't even have any use for otherwise, but the people who had been buying the asset before were other speculators who are now also trying to sell, so you see a sudden market collapse. Speculators know this so even the expectation of a market downturn can trigger the collapse. If people actually need the homes they aren't going to try to sell them the moment they see or expect the market to soften, precluding a such a momentary collapse.

greenyoda3• 12 years ago

Wikipedia defines a real estate bubble like this:

"A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It can be identified through rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline."[1]

The rapid price increases might be caused by speculators, but they could also be caused by the availability of easy money, as was the major factor in the recent U.S. housing bubble (bankers handing out mortgages to people who were poor credit risks). There was rampant speculation in a few markets (e.g., Florida), but the majority of people bought houses with the intention of living in them, not flipping them. The market collapsed when it became obvious that a lot of these mortgages would be foreclosed, and the easy money dried up overnight.

In the case of San Francisco, the rising market is also being fueled by a huge influx of money: the money coming from rising tech salaries. And I think the key issue in this market is sustainability: if housing prices rise faster than salaries, the number of people who can afford housing would decline, demand would drop, and thus prices. And if salaries rise sharply to meet the rising housing costs, the companies who pay these salaries will have strong incentives to start moving out of the area; if that happens, the demand for housing would also decline. No matter how high housing prices go, a company can't afford to pay an employee more than the net earnings the employee produces, so there's a real limit on how high salaries can go.

[1] https://en.wikipedia.org/wiki/Real_estate_bubble

31reasons• 12 years ago

Such an irony. People who are creating the mobile future are not embracing the mobility and cramming into one spot.

kleiba3• 12 years ago

I guess it's time to give up that tech job and become a real estate agent.

kleiba3• 12 years ago

I just saw a report on TV about how gentrification in New York City has started to reach even the upper middle class, with young families north of $100,000 per year can no longer afford to stay in their Brooklyn neighborhood. In Manhattan, the super-rich of Russia, China, but also Europe have found a trendy place to buy luxury apartments that they then only use rarely. Not only workers, but also people with high-income jobs have started to be pushed out of the more sought after neighborhoods.

impendia• 12 years ago

An interesting observation.

When I lived in Menlo Park, I observed that local politics (definitely including zoning regulations) were controlled by wealthy homeowners, who had a strong vested interest in the status quo.

But absentee homeowners, whose principal residence is not in Manhattan, are presumably ineligible to vote there. So it seems plausible that zoning and other local laws might tilt in favor of the renters, middle class, and others who actually live in their neighborhoods.

dragonwriter• 12 years ago

Not only workers, but also people with high-income jobs have started to be pushed out of the more sought after neighborhoods.

"People with high-income jobs" are still workers. The "job" bit gives it away.

kleiba3• 12 years ago

Sorry, I meant "blue collar workers" which we unfortunately have come to expect as victims of gentrification.

EDIT: Disarmed previously snarky response.

josephlord• 12 years ago

From the title I was assuming it was going to be an article about Detroit or some other place where there really is no possibility of house prices falling because they are already at or near zero. In SF falling prices is definitely possible even if not likely in the short term.

If the acquisitions and other positive exits dry up (even for a couple of years) the prices may readjust quickly and once they start to fall the perception of inevitably rising prices will disappear taking further demand with it (people will prefer to wait for cheaper prices rather than buying urgently before prices rise further).

I am not predicting immediate falls by any stretch but when people start saying prices can't fall is when people buy on that basis and are shocked and damaged when they do (which at some point they will).

arbuge• 12 years ago

The irony of it is that many of the companies in the Bay area are actually building technologies that help people to work from anywhere effectively, such as email programs, messaging apps, project management tools, video-conferencing, etc.

So in theory the problem should solve itself. If their apps really work, the pressure on Bay area real estate should ease. In practice I'm not hopeful.

smartestone2• 12 years ago

The left says we're in a housing bubble, but prices keep going up with no end in sight. They want to believe in a bubble like they want to believe in man-made global warming. Outside of the political sector the meritocracy is alive and well. The best and brightest are still getting ahead if the runaway success of snapchat, whatsapp,instagram facebook is any clue. Ambitious, high IQ people are making millions and billions in a matter of months and years through coding, web 2.0, stock market, real estate ,etc. The meritocracy, America's global influence, and the US economy has never been stronger. The left wants to believe that America's best days are behind it because they resent the success of the 1% that make America the success it is.

reallysmart• 12 years ago

coldcode• 12 years ago

I would have no trouble finding a job in that area. But why live in a place where even a ridiculous salary is proportionately less than just about anywhere else? If you are competing with stockified millionaires no salary will ever compete. My 2000sf house here in Texas in worth $160,000. In SF it's probably ten or even twenty times that. Can I get paid ten times my salary here? Hell no.

savvyraccoon• 12 years ago

Why do you compare the whole state with on city? You could easily find 2000 sf house in California for $160,000.

pyrrhotech• 12 years ago

The minimum salary for a police officer is 88k. You can look right on the website.

That's for an entry level cop. The average is around the same as the average tech worker, 140k. Some cops pull in 300k+. They are doing just fine

joesmo• 12 years ago

With the median housing price being ~$825k and a mortgage qualification of $400k (that's pushing it) for an engineer with $150k yearly salary, that's still a gigantic gap. There's little difference in the coveted spots on the rest of the peninsula.

Where does the obviously wrong conclusion that tech workers themselves (engineers, scientists, etc.) en masse are the cause of such rising prices come from? What tech worker has ~$825k in cash that they can drop on a house (more like a one bedroom in SF)? It seems to me, people are simply ignoring the math because it's convenient and the idiots attacking google busses and such because they never learned it.

The Housing Market With Nowhere to Go but Up

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