Hi stvswn: I think a really important thing to take into consideration is that California caps property taxes under 1978's Proposition 13. At the same time, Palo Alto has a particularly strong "residentialist" ideology that prevents additional development. What that means is that landowners are able to accumulate supra-natural returns in on their holdings, while doing nothing on their land. It incentivizes property owners across Silicon Valley and California to sit on parcels and ride the price appreciation without redeveloping the property. That in turns imposes a sort-of tax on innovation and productivity in the region as a larger and larger share of income-generated merely goes back into the land, instead of to other productive uses. http://www.economist.com/blogs/freeexchange/2015/03/wealth-i...

It's hard to argue that the prices that exist in Palo Alto are "market rate" in this context, since supply has been so consistently restrained since the 1970s.