It bothers me that so few people mention the role of Proposition 13 and low property taxes for housing in all this. Proposition 13 makes it so that property taxes are fixed when you buy the house and only ever increase with inflation, whereas most other places make property tax rates proportional to the current market value of the home based on things like recent sale prices of other nearby homes. For example, in Toronto property taxes are set based on the assessed value of the property relative to the city average, and rates are set based on the municipal government’s budget and expenses.[1]
As a result, it’s costly for local municipal and county governments to zone for residential areas, because of the need for schools, parks, libraries, and other public services needed. If property taxes don’t balance out those needs, then zoning for commercial buildings instead ends up being far more attractive to local governments. The results: more office buildings, more jobs, but insufficient housing to support them.
Increasing property taxes is tricky because of the risk of further displacing long-term residents, or older residents, who have owned their homes for a long time. But in my view the impacts of property taxes on cost of living and the housing crisis are undeniable, and it’s unusual to me that so few people ever even _mention_ it in these discussions.
That combined with rent control laws that have been shown to increase rent costs result in much less natural liquidity in the market and therefore higher prices.
But it goes well beyond that. A landlord can own a $4 million dollar shithole but only be collecting $3000 a month from tenants because they've been there for 12 years and the landlord can't increase rent. If they try to sell the building with long term tenants it becomes an intractable problem because there are few ways to force anyone to leave an apartment and tenants know this - it is not uncommon to offer tenants more than $50k to leave an apartment, and it actually doesn't make economic sense for tenants to take less because if they have been there >5 years they are probably saving at least a thousand dollars a month in rent.
So the end result is that a lot of landlords simply have no incentive to fix up a place. Roof is leaking? Too bad. Your landlord might not fix it and sure, you can take it to the courts and win BUT that means you have to leave your apartment until they fix it the issue and any other thing the inspector finds. Which tends to stretch out for years while renters have to find a new place. So renters generally deal will all types of illegal and unsafe housing issues so they don't lose their "good deal" on rent. So both renters and landlords are incentivized to accept shittier and shittier housing while the letter of law for housing inspections gets more precise and costly for owners when things finally get bad enough.
The lifecycle of a house in San Francisco is 20-40 years of disrepair followed by a complete teardown (except the facade so they can still call a "remodel", yes this is a well-known SF red tape workaround) then a new bigger house is put in it's place and sold for top dollar ($3-5 million is the going rate for a nice new rebuild). This is why shacks are still commanding $1-2 million because the land itself (and the facade) is worth it.
> One crazy thing is that you can get reassessed for improving a place.
As far as I know, the property tax based on reassessment is only increased for the marginal improvement. For example, say I have a house that's currently assessed for $200K, but it's true market value is $500K. I then add a room to the house and the market value jumps to $600K as a result. The new assessed value would be $300K — the original $200K plus the $100K I added by improving the house.
So still undervalued tax-wise, but my property tax increased by 50%.
Presumably when the landlord rented the place out they did so at a price that would cover their mortgage and other expenses including maintainance. That landlord's problem isn't covering expenses, it's that they're envious of the increasing profits of other landlords.
The problem with Proposition 13 is that it also applies to commercial real estate.
A personal residence can only be about 30 years out of date in terms of assessment. And, when the owner dies, that assessment corrects.
Commercial real estate will get buried behind layers and layers of sublease agreements in order to avoid triggering a reassessment. At one place I worked, we had to find the actual original building owner because someone drove a car through a support beam and the rework was going to cause everything to come up to code. We moved out because nobody could actually get through all the layers of subleases (11 layers when I last checked) and guarantee a completion date.
The solution is to remove the Proposition 13 protections from commercial real estate. Good luck. Every company with real estate on the books in California is going to fight you tooth and nail.
When you inherit property from your parents the Proposition 13 tax basis is preserved. Many of the kids I grew up with still live in their childhood homes for this reason. Seems a bit ironic: those who can afford to keep inherited property continue to benefit from the Government subsidized tax break, while those who can't afford to are forced to sell.
If the people wanting that very change simply organized the requisite petition drive, I'm guessing it would pass easily. That's how Prop 13 was installed in the first place -- the Jarvis-Gann initiative amendment. Same with the California Lottery and legalized marijuana (I think the latter was just statute law, which has a lower number of required signatures.)
California has very serious economic policy issues in housing, not only prop 13, but the ability to NIMBY and the high cost of regulations (building and construction is most onerous in california).
The economists of both SF and California agree on the issues. Its official. The problem is political.
The conclusion is that unfixed, california will hit a ceiling on its growth, and people will move out.
Ugh I'm tired of these articles that declare SF / SV are over. This is my last rant...hopefully!
They take a small group of people that actually are moving and blow it up into a trend. It's been going on for years.
Yes home prices are insane. No salary doesn't make up for it. Yes your house will be smooshed in between others unless you got a lot of money. Yes you could get 2x the house for 1/2 the price anywhere else.
But it ignores two huge factors keeping people here. One the network density for tech. There are more jobs and support here than other places. More investment dollars create more startups which hopefully have more exits which attracts more investment dollars. It's a virtuous cycle.
Two is the lifestyle. Yes there's a liberal bent but it's traditionally been one of the most open minded places in the country. There are few other places you can experience so much of life's variety within a 3 hr drive.
And the whole remote working thing sounds logical but I see few companies actually widely adopting it. A lot of people prefer to connect in person, even though there is no rational reason why anymore.
It's not just the people who are moving away from the bay area, you also have to account for people who are dissuaded from moving to the area due to the high cost of living.
When looking at where to locate my startup we considered SF but when I ran the numbers our runway would be severely limited. Instead we could run for years off of personal savings in the southeast. Instead of being forced to raise VC money I could control my own destiny.
There are definitely strong network effects of living in the valley. They are not strong enough to beat out market forces if you have the skills to make the product yourself. A single person has a lot more leverage than they did 10 years ago. Most tech companies don't require hordes of engineers. There are smart and talented people everywhere.
The majority of tech happens outside of the valley, and its status as the center of innovation is more likely to be a quirk of history than an act of predestination. Build great products that people love to use and everything else will follow.
> been one of the most open minded places in the country
Not at all. I've lived in several states and I think you're conflating the "liberalness" with open mindedness. If anything, the Bay Area is one of the most closed-minded places in the country. There's absolutely no room for conservative ideas
I'd question that, with a caveat: if you want to live your life by conservative principles, nobody's going to care in the Bay Area. If you want other people to live their lives by your conservative principles, that's when people start to get pissed at you.
I know plenty of Christians in the Bay Area - my wife grew up in a conservative, evangelical household (and her parents are still very devout), so basically everyone she hung out with up through college runs in those circles. We don't personally drink or smoke out, though we have no problem with people who do. I have friends that go shooting regularly. I've been to a gun range with them, and enjoyed myself. My politics run mostly moderate libertarian - I'm for lower taxes and smaller government, but also believe that government has a role in righting externalities and ensuring a level playing field for everyone.
I've never met anyone in the Bay who has a problem with how I live my life - but then, I don't believe that other people need to live their lives the way I live mine.
Peter Thiel or the Oculus guy might disagree, but you might not hear them over the thousands of people demanding they be fired/divested from/run out of town.
FWIW, I agree with you. I've lived in several states (and a half-dozen countries) and I find the culture of the bay area more monolithically stifling than anywhere else I've lived. No hyperbole. And I am someone who would be considered well left-of-center just about anywhere else in the country.
Actually, I think the remote work aversion is completely rational. As background I worked in the Bay Area for about 7 years and worked remotely from LA for about a 1.5 years & moving now I'm moving back to the Bay. Remote work (specifically at home) offers a bunch of benefits like having a lot more flexibility, a lot more free time (not just in commute & traffic but also in being able to wake up 5 minutes before needing to be at work).
The downsides are:
* It's hard to motivate to actually work during "down" times whereas if I were at work physically I'd be much more inclined to do something once my regular tasks are complete.
* You lose a lot of the in-person communication that occurs either because you overhear coworkers or you run into people in the hall & just chat semi-socially.
* You are largely a forgotten quantity. Out-of-sight out-of-mind is real.
* Whiteboards are really hard even with moveable cameras & don't work for collaboration. Maybe there's software to help with this but it's not natural.
* Meeting infrastructure has to be extremely reliable & coworkers need to plan to account for every meeting being remote. A broken telecom unit, internet issues etc make unplanned changes harder to adapt to. Even harder is if, for example, an external partner is visiting & needs to present regularly & the local connection cannot be presented via the telecom system.
* There's far fewer opportunities for work which means it's hard to look for more lucrative opportunities. Similarly, the lack of opportunities means it's harder to leverage that for salary negotiations.
* The opportunities that do exist are at firms that aren't doing the bulk of interesting tech work. Even for multinationals the most interesting tech work (granted at least for my interests) tends to still be centralized in the Bay Area.
* If you're already working for a big tech company you're probably at the top of (or even above) your salary range for any alternative job unless you manage to get a promotion at the same time.
From an employers perspective, the efficiency costs aren't worth it.
For companies that didn't start with remote work, it's hard to justify supporting it when the office space is a sunk cost. Keep in mind that employers don't move employees around regularly for no reason. The bulk of the reason is to have as many people that need to communicate regularly as physically close to each other as possible.
I also notice that they do focus on the most extremes. I'm not going to claim that things are remotely cheap anywhere in the Bay Area, but if you're not dead set on being in The City (tm), the prices drop substantially. Again: yes, still expensive. Yes, if I lived somewhere else, my rent share for a 2BR place in Santa Clara would be less than I'm paying. But so would my salary, and in my experience -- and a little contrary to my expectations -- the salary often does make up for it on an absolute dollar basis.
There are few other places you can experience so much of life's variety within a 3 hr drive.
This, more than anything else, is what makes me reticent to move.
> been one of the most open minded places in the country
What if you want to ride a Google Bus to work, and have the audacity to think that you don't deserve to be shot at or have bricks thrown through your window? [1] [2]
Got down to the bend part where they just cited cnbc which only really took the word of that one dude that travels for work and somehow that turned it into a "commute". No one is driving 10 hours for work.
The regulations that prevent new building are the work of incumbent residents -- people who have been here for many decades, support the arts and fly under the radar when it comes to assigning responsibility for this situation.
I don't live in SF. I visited a few times and it's not my cup of tea. I prefer LA and plan to stay here forever.
LA is expensive as well, but there are places that you can rent on the cheap, or at least a reasonable amount of money, and be safe. If this wasn't the case, LA as a city would break down. We need music, artists, actors, people pouring coffee, and serving tables to keep this city alive. We need a poor person living in the same building as an executive. On top of that, we need places where poor people can afford to eat, so there is a McDonalds anywhere you go.
I bring up McD's because I was "over-fooded" in SF and went on a desperate search for something trashy to eat, almost to no avail.
I'm just wondering how SF is able to sustain itself and how it plans to sustain itself in the future if they push all the poor people to such a distance that they can't even take the BART or bus to work anymore.
The other difference is that LA is very much a gig economy. There are a LOT of people out here that either don't have a job and live just fine, or they have a day job and do random gigs during their off-hours. As someone once told me, you don't sleep in LA, you just rest. Others have pointed out that this is a work area, and so on. But even so, there are so many different industries down here that you can, with time, talent, and luck, have sustainable life and your own place, well outside tech, movies, music, art, and so on.
My impression is that the bay area is an area with a few viable ways to make a living. Is it just that the lower class has to live in the dangerous areas of Oakland (and elsewhere) to just have a roof over their head?
> My impression is that the bay area is an area with a few viable ways to make a living, and is it just that the lower class has to live in the dangerous areas of Oakland (and elsewhere) to just have a roof over their head?
There is no shortage of fast food workers, waiters, retail workers, coffee shop workers, handymen, etc. It's expensive to live in the Bay Area, but clearly those people are able to make a living or they wouldn't be around anymore.
And they don't all commute from far away. I know plenty of people working those jobs who live in the Bay Area near their places of work.
There's a lot of inertia to people and their geography. The absolute loss of non-tech activity may be small for now, but ask anyone who hires people outside our industry where the think their organization will be in 10 years.
A colleague once remarked, "It's the second derivative of the thing that'll get you."
It could be part of both. It seems that, especially in the past 30 years, the entire bay area (which is large) just become a tech hub.
The difference is that, while LA is well-known for Hollywood, you can go a few miles in any direction and get away from "the industry." Considering there were bench advertisements for big data all around SF, it didn't feel like you could get away from tech or really any of the things that are more or less a deep reflection of the cliche tech crowd.
So, whether "on purpose" or not, the fact is that the resulting food, work, life, and so on appear very different. For an example, if you trying to be an actor, you'll likely fall through the cracks, though it's entirely possible you will still work in entertainment in some capacity.
The difference is that you can leave that industry entirely and still have a viable way of making a go at life. This is different than being a place that (feels like) you have the option of tech or get out.
I'm not bashing SF at all, by the way. It seems there is a bit of a resistance to welcoming other things at this point. I could be thinking wrong here, but the "tech is everywhere" is definitely a comment I've heard from people living there or visiting there that have no involvement in tech.
There are a lot of causes for this. But one of the easiest to fix: VCs don't like getting on planes.
I've lived here since Bubble 1.0, but I still keep in touch with people in the midwest. There are plenty of startup-oriented people there, but in their view to get real investment, they have to move to SF.
It'd be great to see more companies starting and growing in places where housing and office spaced is reasonably priced. The Internet has made location much less important for so many things; we should make that true for startups as well.
Sales is a lot harder outside the valley too. We sell enterprise sales data + tooling. sfbay has by far the largest density of sales leadership for the type of b2b companies we target. So there's a huge advantage to that.
Also, our angel was largely on the basis of personal relationships. Plus our lawyer pointed out that, even now, comfort with SAFEs is a pretty bay area phenomenon. So if you're trying to raise an angel, how many people in the midwest are comfortable writing a $15-$30k check on an unpriced note with a reasonable (phone call ceo, deck, phone call all founders) basis?
To be fair to them, flying does cause a lot of time waste and hassles.
The curious thing is that expansion to places within reasonable driving distance like East Bay has been slow as well. Is the cost saving from East Bay locations not large enough or is it some other factors?
The BART-connected East Bay is only a little cheaper, and many SF and SV employees already live there. (On my last team, everyone commuted at least an hour on BART).
Sacramento is almost a normal American city in terms of real estate prices. It would be pretty reasonable to live and work there, and take the train to SF for investor meetings.
In that case, moving the office to East Bay would save everyone about 2 hours each work day? Seems like an amazing benefit for everyone involved—-less commuting time & stress, better productivity, greater employee satisfaction. Why haven’t more companies move there? Really curious.
When you’re in SF, people can also commute from the Peninsula. Also there is probably more office space in walking distance of a single Market St. BART stop than the entire East Bay network put together.
.02: once you get off the peninsula and public transit goes to shit (well, even more shit), you're basically committing to never hire people who live on the peninsula. The reverse isn't true.
"WeWork, a startup that rents out shared workspaces, branched into co-living in 2016. Their "dorms for grown-ups" are intended for people moving to a city and looking for fast friends.The company, which has a $20 billion valuation, has two locations: one in New York and one in Crystal City, Virginia, outside DC. The average apartment is just 450 square feet."
How does a company running glorified dormitories have a $20 billion valuation with only two locations?
You misread it. WeWork is a huge, international network of co-working office spaces that also happens to be experimenting with two co-living locations.
Could be but they're middlemen providing a valuable service. It's a one-stop shop for a work environment. The landlord benefits because they have a regular income stream & don't need to worry about tenants coming & going. Customers get to adjust their needs on a month-to-month basis for a smaller up-front cost than they could get leasing themselves & can dynamically adjust if they grow. Similarly, they don't need to worry about setting up internet service & any of the other things WeWork offers. Additionally you can cheaply temporarily rent space if you have travel needs. That's the value-add. Now how successful they will be I don't know but I fail to see why real estate ownership matters here.
Personally I think WeWork is pretty exposed to any kind of economic downturn as most of their customers are burning cheap VC money. If half those companies were serious about getting profitable they'd go somewhere else with half the amenities at a quarter of the price.
There aren’t places like this with short term leases. You either get expensive month-to-month (or slightly cheaper year to year) or you get a cheap 5-10 year lease.
If you are not established enough to take a 5 year lease, then wework (and their competitors, of which there are many) make a lot of financial sense, especially for the flexibility — e.g. if you downsize, rent goes down accordingly in 1 month. No “cheap” lease has this feature.
Also, WeWork is cheap compared to prices Regus used to charge 5 years ago; I would assume Regus did respond to the price pressure, but I haven’t checked.
Arguably SF doesnt have stricter regulation than any other big city (save for seismic) - but the demand far exceeds the units the type of regulation the city has, will allow to be built.
Laws of use and laws of possession always seem to come down to enabling benefit for current holders over future holders.
Thing is, changing this is like changing the gravitational constant. It's baked into the DNA of property rights, leases and taxes.
sanFran is maybe on an extreme here for the USA but it's not necessarily worse than say Tokyo, or the eggegious failure of leasehold in London, or a number of worldwide housing issues
What is the average 1BR apartment going for now in SF? (I'm not sure that Craiglist or quoted outliers are entirely representative, and am interested in the experiences of people more familiar with the market.)
> This is how people outside the area imagine living in San Francisco.
She doesn't seem to think much of her readers.
> San Francisco's chief housing inspector deemed living in boxes illegal.
Pretty sure we started the intern we hired at 120k base salary plus like 20k in stock a year. So you know, don't accept an offer that only pays $100k.
But more seriously, my $3k apt is fairly high end. I toured a number of apartments in the $2k range, which is still kind of absurd, but then again McDonalds is offering like $17/hr an hour as a starting wage and still struggles to hire. At 2000 hours a year, that's a $34k annual wage, and you'd still probably need a 2nd job to make ends meet. Or get paid under the table and save yourself a good 5 thousand bucks on income / payroll taxes.
> The median-priced home in San Francisco sells for $1.5 million, according to Paragon. It's not uncommon for buyers to bid hundreds of thousands above asking and pay in all cash.
Who are these people? There are a lot of homes there, so there must be a whole lot of buyers with $1M in cash. There are enough of them that they even try to outbid each other by slapping an extra $100k no top of asking price.
There actually aren't a whole lot of homes on the market (much of the city's housing stock is either rental properties or is owned by longtime residents who ain't moving anytime soon), but to answer your question: anyone who's been at Google, Apple, or Facebook since 2009, got stock options, and held them. Google stock has appreciated 7x since then, Apple 10x, FB a whopping 35x. $100K in stock options is actually a pretty small options package over 4 years, but if you got that much in FB stock when the whole company was worth $15B, that's now worth $3.5M.
Thanks, I think that explains it. I guess with enough tech companies and enough exits happening they'd be good amount of these people to skew the market.
And the market in SF and other Bay Area cities is _really small_. I recently read that Cupertino has only a dozen houses on the market total, and SF may have as many as hundreds or even a couple thousand (in a city with a population over 800,000). Actually, I just looked at Zillow and there are 17 properties on the market in Cupertino, which had about 20,000 households as of 2010.
Not sure where that stat comes from but I suspect that median value would include rent controlled apartments. My 1908 era 6 unit apartment building on the edge of the mission is about $3900 for a 2 bedroom place which is 3 empty rooms, a bathroom and a kitchen. I do like the location but I can hear the upstairs neighbors drop a fork and it wobbles whenever a bart train goes underneath.
I'd be concerned about living in any structure that was built shortly after any major natural disaster. I'd be paranoid about the inherent pressure for fast, slapdash construction. For example, I wonder about buildings in the Marina and other areas that liquifacted in 1989.
It's also 1 block from one of the famous under-freeway homeless encampments.
One more anecdote, since part of this discussion is about rent control and how it affects peoples choices living in the area. I currently pay ~ $2150 because I've lived there for 8 years. That's why I'm also holding on to the place even though I currently work in San Jose (a 1 hour drive each way). I'd pay even more than I currently do for a place down there, but probably less than a new tenant moving in here (SJ is merely the 3rd most expensive area in the US). The commute sucks, but I prefer to hang out in SF on the weekends.
So yeah, maybe the landlord is missing on a bit of opportunity cost because I live there, but as soon as I move out, it would go to market rate. They could make an extra $20k/year if I moved out but I think generally having a stable tenant in the long run is a benefit, and they've certainly profited far more than that from owning the property. Tenant turnover is pretty high, from what I've seen most people only live here for a year or two.
I also wonder if it's median of available units or available of all units. It's possible that there are so many folks who have been living in the same rent-controlled $700 apartments for 30 years that the total median is much lower than what you can actually find on the open market.
Is there any part of this site where some suggestions could be made to moderators/admins? Like restriction of sharing links to sites which you can't see if adblock is enabled?
Eventually only a specific people who can afford would stay and who can't would move. Other cities would definitely get established which is a good thing. Remote working is not my cup of tea. I live in New York city and I love living and working here.
As a result, it’s costly for local municipal and county governments to zone for residential areas, because of the need for schools, parks, libraries, and other public services needed. If property taxes don’t balance out those needs, then zoning for commercial buildings instead ends up being far more attractive to local governments. The results: more office buildings, more jobs, but insufficient housing to support them.
Increasing property taxes is tricky because of the risk of further displacing long-term residents, or older residents, who have owned their homes for a long time. But in my view the impacts of property taxes on cost of living and the housing crisis are undeniable, and it’s unusual to me that so few people ever even _mention_ it in these discussions.
[1]: https://torontoist.com/2014/01/everything-you-ever-wanted-to...