Of course good luck convincing J. Random Householder of that
But it doesn't matter. The Bay Area region is going to see serious emigration over the next 5 yrs and it'll be primarily the people that SV wants to keep around: younger people who can't afford to lay down roots in SV and furthermore understand it would be stupid to do so at these prices. Especially with engineers, I refuse to believe most under 30 aren't already well aware that the economics favor living cheap, saving up, and then getting out.
Tech is very compatible with remote work (even at a low level when you think in terms of microservices and PaaS), and moving operations or starting fresh is relatively easy. Even the networking argument is thin: there are already concentrations of talented engineers in a bunch of major cities. Not to mention I've self-learned almost everything relevant anyway. Conferences and assorted other BS are largely pointless.
So what's left? Investors and existing companies. I believe this is why we haven't seen a substantial exodus thus far. I think the argument about career advancement issues being in a non-HQ office doesn't really hold as much water for the large companies. I also think tech companies look at good engineers located outside the expensive SV bubble as a kind of subsidy: revenue isn't nearly as sensitive to geographical distribution of employees as is cost.
With investors the story may be different. They want to keep a close eye on their companies and finding good engineers to take a chance on your startup is much easier in a high-density tech zone. But why would entrepreneurs want to suffer the incumbent costs? Assuming the same size of investment round, wise founders would choose to minimize their burn rate by locating somewhere closer to the midpoint on the spectrum of tradeoffs (e.g. Boulder/Denver, Austin, NYC outside Manhattan, Seattle, LA, etc).
TLDR: It seems like the status quo is far too tenuous to continue to hold indefinitely.
I'm kind of surprised that public companies with heavy presence in the Bay Area aren't coming under pressure from investors to relocate their operations to cheaper locations.
But then I realize that most Bay Area salaries do not compensate for the living expenses, so companies aren't bearing the full brunt of the living costs on their payroll.
However, that makes less sense in a cul-de-sac suburb + highway situation than it does in a city with more public transit options and fewer highways. You basically have to rezone and buy out several lots and put up apartments and the entire neighborhood changes. So if your house gets bought up, you may benefit but it may drop if you live near it but don't sell to the developer.
I see this in Chicago. Graph price of single family 3 bedroom home and 3 bedroom condo. The prices track. The SFH is worth about double... When condo prices fell in 2008, SFH prices fell too.
In Chicago, a 300k condo and a 600k single family home ARE substitutes. I know many people that could afford either. As the delta shifts one way or another, more of them will opt for the other choice.
A lot of CA people explicitly treat their home equity as their retirement fund, planning to "cash it out" when they retire. Then there's the people with loans they might be cashflow-negative on month-to-month (paying down a sliver of principal), who are hoping to re-amortize into a new 30-year loan when their value goes up, hopefully cutting some of their payments.
I'm 31. My household income is well over 200K and I have many friends in the same boat, and none -- I really mean it -- zero -- of us own homes. The only hope is to get into a "starter home" as some other commenters describe and then hope to have enough equity that if you ever want to have a kid or live in a non-shoebox, you'll be able to afford to make a big down payment on a new place.
I hate this because it seems extremely financially imprudent, but realistically, your options are to play the game or move. There just isn't sanity in/around the Bay Area housing market.
I know that in Toronto there's a lot of casual evidence of empty condos. Multiple buildings are springing up without any need for sewer system upgrades. The lights never seem to be on in most of the units. Keep in mind it gets dark before 5 in the winter. New condo developments don't seem to have grocery stores or supporting businesses.
But again, there's evidence but no one can get any real numbers.
Also owners have an incentive to lie to the government. Getting Canadian citizenship requires spending most of your time in the country for multiple years, but that's hard to track if you come and go on different passports.
>Multiple buildings are springing up without any need for sewer system upgrades.
How would you know? Do you think most people ask the guys digging up the streets what they are doing? Or what kind of capacity exists in Toronto already(was it future proofed?)
>The lights never seem to be on in most of the units.
Can you give any examples of buildings that are over a year old that are like this? I moved into 33 bay st on the first day residents were allowed in and my floor was empty for 3 months other an me. Most of the building was empty but that was largely because a) there were a lot of units for rent that took time to fill out. b) the sales office was open for 2 years after the building was complete as a lot of units weren't sold straight away.
>New condo developments don't seem to have grocery stores or supporting businesses.
Have you got any examples of this? 33 bay doesn't have a grocery store in it but everyone in those 4 buildings went to the Longos under Mapleleaf square or the Loblaws the other direction. Cityplace has a grocery store and pretty active bars/restaurants now. The ones on King/Queen have the Loblaws on Queen in walking distance and the ones on Yonge between bloor/king have the MLG Loblaws.
>Getting Canadian citizenship requires spending most of your time in the country for multiple years, but that's hard to track if you come and go on different passports.
Most of the people aren't looking for citizenship though only PR status which doesn't require that.
Why the Bay Area? Because it has a huge collection of both jobs and employees. As an employee you have lots of options should things fall through with your current employer, and as an employer there is lots of talent you could potentially hire (though for a high price). No reason it had to be the Bay Area in particular, but it had to be somewhere.
If it moves somewhere else, it's likely that place's real estate market would be similarly inflated by an influx of professionals.
Some people (pretty much everyone who is vocal about this on HN) see remote work as the solution. I'm skeptical - it takes a lot to make your issue tracker, documentation, mailing lists etc. thorough enough that they're the only communication developers need. In my experience (and I expect at many companies) developers come across crucial bits of information through serendipitously overheard conversations, or by wandering over to people's desks, etc. such that if structured (i.e. either async or scheduled) communication were the only communication, things wouldn't get done as well or as quickly.
I'm not sure the former is good for me as an engineer. It'd be nice to afford a decent house, but less so if I have to sell it and move cross country to advance my career or flee an employer going the way of Yahoo. Barriers like geography, moving costs, social ties in different cities keeping the best employer-employee pairs from finding each other are a form of inefficiency that I'm not sure we should seek to introduce.
I'd like the latter - we could build it somewhere more development-friendly, which would make it less insane than the Bay Area housing market, but putting a huge industry of well-paid professionals somewhere isn't compatible with low cost of living (see: Manhattan, DC).
And seriously that zone along the coast range up the peninsula is a really sweet spot[1]. If you and your associates have to be somewhere it's really hard to beat. (not so nice for the middle class couple trying to buy a house where the schools are still good, or the guy commuting from Tracy)
[1] Los Gatos all the way up to Woodside. Also check out Danville CA on the other side of the Oakland Hills.
There's an excellent video on him around, I'll see if I can't turn that up. Here: "The Secret History of Silicon Valley", tech talk at Google: https://m.youtube.com/watch?v=hFSPHfZQpIQ
Briefly:
UC Berkely and Stanford, each of which had (and have) excellent engineering deparments. Other colleges, universities, junior colleges, and public schools were from the 1950s through 1970s excellent. Most have been faltering since the 1980s.
Moffet Airfield. Already established by WWI and home to airship activity.
World War II. An immense industrial capacity built up, many defense industries, and a nascent technology cluster.
Amazing weather. There's little else in the US, or anywhere in the world, which can compete.
(For all the specific local boosters out there: I didn't say no places, I said "little else".)
Cheap housing. Up through the 1970s, California had ample room to grow, and things didn't start getting particularly nuts until the 1980s and 1990s. Since 1995, it's simply been insane.
Freeways. For a time it was possible to get around. That's no longer particularly the case. BART helps. Caltrain doesn't hurt too much. Both are entirely inadequate.
The ability to work from anywhere is only about 10 years old. The need for tech industry is closer to 50-60 years old, and local efficiencies, economies of scale, job-mobility, etc., all happen and matter.
If engineers are purely sitting at their computers and not talking to each other at all (except during scheduled meetings), the team could probably be converted to remote without downside, but plenty of organizations have an implicit dependency on unstructured conversation, and while there are ways to facilitate that in a remote work environment, it's not obvious.
Tldr; early internet infrastructure
In NYC we complain like crazy about housing, but it's honestly fine compared to what you describe. In NYC you can't have it all but you do get to pick any two of: spacious, cheap, or short commute.
Apparently in the Bay Area it's pick any zero? Why do people keep going there?
No, its not. You can find spacious, reasonably cheap places within tolerable -- though not short -- commutes of most Bay Area jobs.
I suspect that young, high-income tech workers very often (1) want short commutes, and (2) want other aspects of the urban lifestyle of the core of the Bay Area whether or not it comes with a short commute, which makes the peripheral, long-commute places with such housing unattractive. (Plenty of families where the adults work in the core areas of the Bay Area do live in those peripheries, though.)
> Why do people keep going there?
Because that's where the (tech, for instance) jobs are?
Because the Bay Area has the best job market in the world for software engineers, by a huge margin. It is home to the headquarters of most of the major tech companies people can name, and contains major satellite campuses for major out-of-state tech companies such as Microsoft and Amazon. The scale of the tech industry here is simply unparalleled anywhere else.
Besides, you can pick 1, not 0.
A margin in what quantity exactly? I doubt that Bay Area salaries are high enough to compensate for the insane housing costs.
While you may not be able to afford housing, you can bank $100k/yr if you live frugally. I'm not sure where else in the US that's a possibility.
There are many cities in the US where you could comfortably live on $35k and get paid $135k as an engineer.
I find it amusing that every time I bring these numbers up, I get people telling me I'm wrong. I'm not making these up. There are people I know making those salaries. There have been countless people here who have talked about how they make that much. This isn't a secret.
Living on $35k and making $135k doesn't mean you'll bank $100k/yr. Taxes cut into it. Living on $150k and making $350k does. And if you're smart you can live on $80k/yr in the bay area. I even know people living on $35k/yr out here.
Not everyone gets the high paying Google job. Not everyone wants it. But it exists and it pays extremely well.
You also neglect stock purchase plans and RSUs, which are the majority of many engineers' compensation. You could make $160k per year at Apple or Google and get $200k of stock every year as well.
If you lose your job, or your company fails, you won't have to move to find another job -- there will be plenty of other companies to work for. Taking a job at a startup is therefore not a huge risk. Buying a home here, and thereby tying yourself down to this area, is unlikely to hold you back in your career, as it might elsewhere -- you will probably never need to move in order to achieve advancement in your field.
There is also the presence of venture capital. The VC world is very Silicon Valley-centric, although that might be changing. If you want funding, you'll have to come here for it. If you want to take advantage of your investors' professional networks to find other investors and build your team, you'll have to hire people who live here and don't want to leave.
As a result of these network effects, many of the world's best software engineers choose to live here, and companies want to be here to hire them. There is now a saying in the startup world that you can start your company anywhere, but Silicon Valley is the best place to grow it, because the pool of engineering talent here is larger than it is anywhere else.
Plus, this is a very nice place to live, if you can afford it.
Despite some of the exaggerations many people are making in this thread, I know quite a few people who have purchased homes and condos in the past few years, including someone who bought one this week on a salary well under $200k -- without any help from his parents or anyone else. I think the highest price any of them paid was about $700k, which is well under some of the numbers people are quoting here. It's doable for a single person who has a high income, and it is easily doable for married couples who work in tech or are successful in other fields. The main barrier to ownership is the down payment, not the mortgage payments.
Renting is also not as bad as people say it is, unless you live in downtown San Francisco. I pay less than $2k per month for a decent apartment in a very good location near a train station and major freeways, and I could spend less if I wanted to. My commute is quite pleasant. My rent probably sounds high to people from other cities, but on an average software engineer's salary, it is not burdensome in any way.
Asking why software engineers would want to live in the Bay Area is like asking why investment bankers would want to live in New York City or London. There is just such a critical mass of activity and connections that one would miss out on anywhere else.
Because new grads keep getting six-figure offers at prestigious companies offering more money, autonomy, and interesting work than what they'd get at Fortune 500 cost center IT departments (those that haven't outsourced to India yet) in their hometowns.
This has been completely normal in many/most major world cities/regions for generations. That's why there's a term for a first home. I don't understand the consternation.
I grew up in a small but nice suburban town about 20 miles outside of Chicago. Plenty of my friends are buying 3-4br houses in decent parts of Chicago for 250-350k. So maybe I just grew up in a "cheap" global city and am not used to what, say, Parisians have come to expect. I think it's just worse in the Bay Area.
For obvious reasons, prices scale with proximity to population centers and higher paying jobs. CA is a big place and encompasses a few very different regions. If you want to live in say, Coalinga (which I just found through a map) in the Central Valley, I'm seeing houses on Zillow in the low $100k's and below.
But, to what's likely your point, in SF and the surrounding metro area, even starter homes are well out of the reach of most of the people that live there. Hell, starter homes here are out of the reach of a good percentage of people, and it's not nearly as bad as farther South.
And where do they move then? To an equally expensive (per sq.ft.) but smaller apartment? Where I live (not california) I know literally zero parents who have moved out of the house they raised their children after retirement.
It seems that only people who inherit their parents houses stand to benefit from rising prices in any way.
The issue isn't house vs. apartment; it's about being able to have a sane base of committed expenses in the face of 4-5 years of double-digit rental price growth in SF. When I first came here 5 years ago, I was paying 750/month for exactly what I live in now -- just 40% cheaper.
I have no objection to living in an apartment and in fact, have consciously chosen to live cheaply and invest aggressively outside the Bay Area. But I think you get to a point where you might be thinking about starting a family and it makes you wonder what the future holds. I suspect most Bay Area buyers would rather buy just to have some stability in their payments, as much or more than anything else.
In more general terms, if space is priced at insane levels, it might be smart to rethink how much you actually need to be happy (or even why stay in SF - I don't understand why people do that).
Believe me, not a day goes by where I don't think about moving. But right now, as long as you can save a bit and don't mind living in a slightly crappy apartment, you'll do just fine here. Just take all the money you would've dumped into home equity and buy stocks, real estate, invest in companies, whatever, and you'll have plenty of money.
The current environment feels very unstable though. Something has to give. Either house appreciation has to slow, or wage growth has to accelerate, or a lot more new supply has to be built. I don't think your average Google/facebook employee knows or cares much about these trends but the startups do, and they're the canaries in the coal mine. If entrepreneurs stop coming to SF, and anecdotally I think it's getting less and less attractive with the rise of angel.co and other distributed funding platforms, this place is really gonna have a huge, long-term problem because big companies don't just spring into existence, they grow up from small companies that start locally.
Your market-rate salary is the salary the market is willing to pay for your labor. Nothing more, and nothing less. It has nothing to do with the kind of lifestyle the salary will enable you to have, or the things you will be able to afford.
Yes, I understand this. I mean that people are bidding lower than they should - they get fewer goods and services than they could have gotten in cheaper locations with their Bay Area salaries.
This artificially low bid can be understood as people paying to live in the Bay Area (and therefore take a salary that buys fewer goods and services than elsewhere).
In so doing they are granting a subsidy to their employers who would otherwise pay higher wages to location-indifferent laborers.
Why they are motivated to pay to live in the Bay Area is a mystery to me.
Owning a McMansion isn't everything. The Bay Area has more to offer in terms of job opportunities, career advancement, culture, and general quality of life than most metropolitan areas in America. Besides, successful engineers are doing just fine here, and many have no problem affording to buy houses.
Right, but the problem there is the insolvency, not being underwater (conceptually, you have the same problem if you are insolvent but owe a nonzero amount that is less than or equal to the worth of the property, though if its less you may be able to stay off insolvency by increasing indebtedness -- though that will probably take convincing a lender that your income/expense balance will change soon enough that you won't end up insolvent and overleveraged.)
As long as you can continue to pay the mortgage each one, nobody is going to come along and kick you out of the house.
The "problem" is that you can't sell your house for a profit to exchange it for an even more expensive house. Hence, the rest of us are on the hook to ensure that your house can continue to appreciate in price.
That being said, insolvency by itself sufficient to lose your house—even if you're not underwater.
Sounds pretty insane.
Incorrect; there are limits to annual increases in tax basis value outside of qualifying events (changes of ownership, new construction on property, etc.), but tax basis isn't divorced from market value altogether.
It could be argued that the valuation on their property being out of whack is an issue of mismanagement by the local government. In that case a better approach might be to allow for a majority of that improper pricing to be written off over a number of years as a tax credit.
Yes. The problem is when it's already become normal, what do you do?
> It could be argued that the valuation on their property being out of whack is an issue of mismanagement by the local government.
Yes, that's exactly what I was arguing.
> In that case a better approach might be to allow for a majority of that improper pricing to be written off over a number of years as a tax credit.
Which is another way of saying that we, as the entire constituency of that tax base (be it local, state or federal), have decided to subsidize the poor planning (to give the benefit of a doubt) of those local governments and try to correct the issue. While probably the most likely to actually work, I'm not holding my breath, as if the pain isn't spread over a significantly larger population than the original problem, it will be hard to survive for the tax payers, and if is is spread, you run into the problem of people not wanting to pay to fix the problems of others (as short sighted as it is, as it stabilizes things overall).
We might hack away at some of the symptoms, but the human psyche is inherently ill suited for rationally weighing the needs of disparate peoples and how they effect us in complex systems like this, being as our neurology evolved for smaller groups/tribes. At least that's my pseudo-psychology take on it.
That's the reason why so many people are anti-regulation and pro free market for just about anything not dealing with actual risks to public safety.
Artificially control supply, prices skyrocket. Let the free market work and as demand increases so will supply as people keep building to accommodate. Also creates lots of construction jobs.
That might be part of it, but it's not exactly obvious that you'd want to live in a place with 50-story buildings either.
Why is it paradoxical? Because they could otherwise have more buyers of their products?
That's something else, isn't it? The people who already live there might not want 50-story buildings, even if there are other people who would move into them if they were built.
That's a valid question for every law or other governmental decision. But we can think of an idealized case, where an entire town, or state, or country, agree that they don't want 50-story buildings, even if there exists outsiders who would like to move into such buildings. In this case, we need only recognize the right of the local people to decide what happens in their area, even if it is against the will of people from elsewhere.
http://reason.com/archives/2014/04/02/zonings-racist-roots-s...
On at least some level, I find it reasonable that the people who live in a certain place decide over that place. In any case, that is rather conventional, isn't it? It's particularly clear on the level of countries, which is why I mentioned it in my comment. Only citizens or residents of a country, not the rest of the world, get to vote in elections.
> The major question is what harm is being done to the local people by the existence of 50 story buildings
That's really a matter of their personal opinion. Some of us find such buildings repulsive.
I find lip piercings repulsive. I wouldn't want them made illegal. The country would be in a better place if people hadn't decided that there's a 0th amendment saying they had the right to never be offended by anything.
Why is xenophobia and NIMBYism acceptable in one case and not the other?
Yes, what if they do? Should they not get to decide because they might haver the wrong opinion? Who should decide instead? What if they have the wrong opinion?
> Why is xenophobia and NIMBYism acceptable in one case and not the other?
What two cases are you referring to?
Also, it's not obvious that NIMBY, as in "yes, do thing X, but not in my backyard", is relevant here, because it's not necessarily so that anyone is saying "yes, do thing X". For "NIMBY" to be a meaningful concept at all, it really needs to be about a situation when someone is pushing X onto someone else, while refusing to accept X in their own lives. If "NIMBY" used simply to describe a position of "no X, please", or even "no X, please, at least not in my backyard where I might have a say in it", then it's not useful, because those are perfectly reasonable positions to have about things.
Most people would think an entire town deciding to exclude minorities is morally repugnant and shouldn't be allowed.
What? I'm not saying I don't. It's just irrelevant to the issue.
> shouldn't be allowed.
That's like saying that "these people over here cannot be allowed to decide over their own neighborhood, because they might decide things that I find repugnant". Well, who are you going to trust with the power?
Wrong. Adding supply lowers prices, not increases them.
The fact that wealthy rentiers in the Bay Area have somehow convinced activists that they should oppose new development is farcical. Liberal activists are literally protesting to enrich capitalists.
That's the rub, after you've constrained supply and inflated prices, there's a vested interest of those who've seen their values increase and those who bought at high values to not let them drop.
This is especially important for those that bought at a high value, as if the worth of their house drops, then they can find themselves in a position where they owe much more than the house is worth. We've seen this situation before, not too long ago. It's not pretty.
AFAICT, the trick is to manage growth effectively in an area through restrictions and incentives so that you try to stabilize house prices as much as possible (like the economy), such as tracking inflation and/or some other indicators. If you enact regulations that suppress new housing when demographics call for more of it, you need to offset that with incentives.
The worst thing that can happen is that a group will wrest disproportionate control over housing policy for an extended period, and then the policies they enact through self interest spiral out of control and make the situation worse for everyone.