I try to help recruiters calling me from the Bay Area understand how profound a negative impact the housing prices are for my modest standard of living. I'm in the midwest, and my house current estimated sale price (if offered for sale today), would be insufficient to be the down payment for the purchase a comparable sized house/property in a reasonable middle class (not upscale) area. I could drop the size of my house (1600 sq ft) down to say 600 or so. And then the pricing is, using Bay Area zillow listings, about a factor of 2 higher than what I could sell my house for here.
Honestly, the housing cost is a severe impediment to people with families, unless companies decide to adjust for this in a real manner. But, the moment they do, pricing/rents will go way up.
The only real way to solve this problem is to not try to bring more people to the Bay Area. Defuse the rent seekers. Reduce the tech mediated inflation.
I don't think this will happen on its own. You'll need a crash of some sort for the area to find its real prices. And it is alarming talking to the recruiters, whom seem to think that housing prices will only ever go up.
This communal living is IMO, a symptom of the problem. It is not a long term solution. I don't know what is the solution. Though I should point out that there is a whole rest of the country which is relatively open ...
One effect of this problem is that when hiring, it's only viable to bring young single people to the bay area -- anyone with a family that needs to live in something bigger than a one (or 0) bedroom condo would need to be paid an unreasonable salary to afford it.
We had one employee quit after 2 months because his wife couldn't stand living in the 2 bedroom apartment they and their 2 kids were living in while they searched for a permanent residence - a search that never succeeded. He paid back the reloc costs, and said that was worth it.
There are a lot of perks to living in the Bay Area (the weather being one of them, there are few other places where you can go kayaking, biking and skiing in the same weekend), but if I were asked to move here today (rather than 20 years ago), I doubt I'd come due to the high cost of housing and lousy commute (with poor public transportation) for those that live farther away for cheaper housing.
>> I don't think this will happen on its own. You'll need a crash of some sort for the area to find its real prices. And it is alarming talking to the recruiters, whom seem to think that housing prices will only ever go up.
Well they aren't wrong. Yes, crashes like 2008 did happen and will likely happen again. But over a decade, you can safely bet that Bay Area housing will continue to appreciate. Why? Prop 13(0). The market dynamics of CA housing are severely warped as a result of Prop 13. Some of my family members pay ~1/20th of the monthly costs that their immediate neighbors pay (mortgages, taxes, etc) due to it. As a result, the supply is very strange and very limited. Some people are very rich when counting the price of the house. But if you take the real estate away, they are very poor. As such, they cannot move around in-state, ever. Reno is their only option. This affects traffic, schools, local taxes, really everything. And every year the effects get worse, and every year it continues to be on the book, mostly because young people don't vote. No discussion on CA housing can go on without talking about Prop 13's distortion field.
It really depends on what you want, though. I'd rather be in a coliving space in San Francisco than in a big house in suburbia outside the Bay Area. As people's priorities and expected standards of living change, so does the market rate for different properties. And it seems like my generation is willing to sacrifice space for being in a large city.
Candidates who make this argument ("pay me 5x my current salary so I can afford similar housing") come across as super tone-deaf.
The cost of housing reflects the opportunity you find in the area. It's a matter of personal preference. If you prefer a big home and less opportunity, stay in the midwest. If you prefer to be where opportunity is greatest, and are willing to sacrifice on square feet, consider the bay area.
But to expect both reflects a lack of common sense. Market salaries and home prices are what they are.
> The cost of housing reflects the opportunity you find in the area.
The cost of housing reflects the market for housing which is driven by many factors, including local opportunity.
Again, with all due respect, the tone deafness isn't on my part (and I don't ask for 5x salary).
It is on recruiters calling me up, telling me how wonderful it is there, then offering salaries on par with, if not below what I am making or being offered elsewhere. I have to help them understand the very real aspect of opportunity cost, the huge negative impact, and that if they want someone like me to view this as an attractive offer, they are going to need to think about these issues.
Put another way, the symptom I alluded to is one where you wind up pricing pretty much all of the talent out of the area. Which, as the invisible hand of the market often does, fixes the problem for you.
Are some people willing to lower their quality of life, live in a dorm with N other people, in a space they cannot call their own, for exorbitant rates? Yes, of course. The article was about that.
Is this a stable scenario? I doubt it. I could be wrong, but I've seen too many of these cycles to buy into "housing prices always rise." Or, "the reason it is so expensive is due to opportunity."
The reason it is so expensive is due to rent-seeking behavior, driven in part but not in whole by opportunity. At what point will people say "no more"? That is the question I find interesting.
I can tell you that candidates from outside the bay area made all the same arguments in 1989, the year I moved to Cupertino from a very low cost state. And yes there were several booms and busts since that time.
Opportunity is emphatically not "greatest" if it does not include maintaining the lifestyle you can get elsewhere, and there is no plausible path for even recovering that level of comfort, much less exceeding it.
I am spending an uncomfortable part of my income in renting. Furthermore, landlords tend to be greedy and unhelpful with any issues. Regulations give you little protection. So the whole experience is disgusting even if you are willing to go for premium properties.
I am considering to buy, but I am not to keen to borrow money equivalent to a decade and a half of income. It feels like selling my soul. The problem here is incredibly expensive land. A small plot in the countryside goes for at least £150k. With so much empty land, permit restrictions can only be explained as a way to keep land supply low and prices high.
I can only sympathise with the tiny house movement. They try to hack planning regulations by building small homes which require no planning permits [1-4]. Maybe not a scalable solution, but definitely a way to voice concern about unfair and wealth-extracting policies that force you to devote years of work to buy a tiny chunk of land from billionaire landowners.
I wonder how far away the tech industry is from returning to company towns, complete with Bitcoin-like digital scrip to spend at their online stores.
It seems like the amount of time/energy spent dressing up the bleak economic prospects of structural inequality as new fashions could be put to better use addressing these problems. But then I guess the robber barons of the gilded age didn't have teams of marketers under the thumb of outrageous student loan debt.
>bleak economic prospects of structural inequality
The housing crisis has nothing to do with economic inequality. If there are 3 units and 5 people who want them, 2 are going to be dissatisfied, even if they all make the exact same income.
Lower inequality just changes the allocation strategy away from "who has the most to spend" to things like government lottery, who was here first, who belongs to the most politically favored class, and who is willing to spend the largest share of their equal incomes on rent (making the most sacrifices in other areas of life). Arguably, we already live in this world, due to SF's progressive policies around housing allocation which seek to dampen the influence of "how much do you have to spend on rent" on what (if any) housing you'll get access to.
The housing crisis would remain exactly as severe as it is now if you erased 100% of inequality between people.
We have it because there is economic inequality between geographic areas, leading people to migrate to areas where this no room for them, and no will to build vertically to make room.
But that's only in a world with flat population. If we were reproducing above replacement rate, a housing crisis would be inevitable without construction, even if every person and every area had exactly the same socioeconomic status.
This is only when you look at it as a zero-sum game, which is only the case because there's not enough new construction happening. If you addressed the inequality between homeowners and non-homeowners by getting rid of the protections afforded by proposition 13, you'd create a situation where it's in everyone's best interests to have lower housing costs and we'd see more new construction as a result. As it is now, homeowners are actually incentivised to oppose new construction since it increases the value of their property.
Policymakers have set it up as a zero-sum game precisely to address structural inequality: to prevent tech workers from ruining everyone else's lives.
Viewing preexisting homeowners here as unfairly advantaged (rather than unfairly disadvantaged by the influx of people with higher incomes than them) is a fringe position that only works on HN. I think it's correct, but it's not going to win a Board of Supervisors election.
Under a certain light SF is a company town, especially when you define the 'company' as the collective of Venture Capitalists that have profit interests in every tech shop here.
I used to live at the Negev, it is not an accurate depiction of startup culture in San Francisco. For starters, it used to be a place that hosted regular Hackathons, tech talks, and other tech related stuff. However it soon turned into a druggie fest, at one point I even saw a girl doing cocaine in the main communal area. I don't think I would ever live in the Negev again, but I did meet a few people that were very nice.
The Negev is a small microcosm of start up culture in the Bay Area.
I have been looking into alternative living situations as a hobby for sometime because I am not convinced that the standard single family occupant home/apartment is best for us as humans, but at the same time 1900 a month for a shared apartment is bat shit crazy.
1900$ is ridiculously expensive. Even in Manhattan you can get a nice private Bedroom in shared apartment (3 to 5 BHK) for significantly less than that. At 1900$ you can get a bedroom in shared 2 Bedroom apartment physically next to the Google building in Chelsea.
I'm a bit worried that this can be penny wise and dollar foolish. Increasing density like this temporarily lowers the minimum cost of rent, but the price per square foot skyrockets. I can't imagine that will be good for any of us.
I also can't imagine the actual cost of the building being anywhere near that much per person. I pay 50% more (each) with a roommate to live fantastically in a skyscraper that has plenty of room. How much is being pocketed in this arrangement?
> "Sarah Sherburn-Zimmer, executive director of the Housing Rights Committee of San Francisco, said housing problems have arisen because occupants leave buildings being converted to communal homes and cannot afford to move back in or the space is no longer suitable for them."
This is incorrect. The reason is because of zoning density restrictions which causes market inefficiency in this case a politically induced scarcity which is a form of rent-seeking.
These zoning laws that create artificial scarcity benefit the wealthy landowners to the detriment of those who rent or want to buy into the housing market.
Economists discuss this. See Tim Harford's book, "The Undercover Economist" or read Harvard Economist Edward Glaeser for starters.
David Ricard was the first to see "rent-seeking" and he joined parliament to help to overturn the "Corn Laws" in 1848.
These zoning laws are simply another way of the wealthy to unfairly get more wealth from others instead of wealth creation through good ideas.
With all of the wealthy company owners in SV and SF, I'm surprise they don't lobby to overturn these repressive zoning laws.
> Zander Dejah, 25, pays $1,900 a month rent to live in a downtown San Francisco house with at least 40 other people, many of whom sleep in bunk beds.
I'm just gonna say it, that's moronic. These articles about people choosing (and yes, when you are a dev who has loads of options it is absolutely by choice) to live like this, or in vans or whatever, just piss me off.
Is an affordable one-bedroom apartment too much to ask? A small one- or two-bedroom house?
The former are close to $1500 just for rents (nowhere near SV) and the latter do not seem to be built very much. Very depressing as a native who wants to purchase a simple house in his hometown.
Where is your hometown? With the cost of land, it seems crazy to build a 1 - 2 bedroom presumably ranch style house in San Francisco. Those style of homes in the Sunset used to be had for $500k or so ten years ago. I think they go for around $1M these days.
I agree that 1 - 2 bedrooms houses are the perfect size, though. I currently live in one (not in CA).
It has some of the best food in San Francisco, though.
I think SROs make a lot of sense. It is too bad they have such a bad reputation (justified in SF) of being sketchy places. I wish there were nicer ones.
Is this city specific? It's nowhere near this bad in south bay.
I'm in Mountain view, close to Caltrain and getting a private room in a large house (sizable backyard, garage, hot tub, kitchen, living room) with two other roommates for $1600/each. We looked at at least a dozen similar houses.
40 people times 1900 per month is 76,000 per month, 912,000 per year.
Usually for real estate back of envelope calculations, 120 months or 10 years' worth of rent is what the value of the property is. What did the Negev property sell for?
It seems in the bay area that figure isn't accurate. From my experience the term is even greater than 150 months, often more than 200. I guess this means rent is cheap here (or conversely the price to buy is very high, probably partly because mortgage rates are so low and the interest is tax deductible).
Thought this was going to be about Chinese subcons a la Foxconn and friends. A different kind of tech worker but maybe not such a difference in lifestyles.
Actually I'm working on that already - http://infinite-food.com/ - though the initial market is mainland China, and to be fair we do also plan to offer strong versions of a significant number of domestic Chinese and international (mainly Southeast Asian) noodle cuisines at launch. Hot personalized meals prepared fresh from ~$2.
More seriously, from our current research early US market entry is not likely due to a highly restrictive regulatory environment. For an apparent example of a blindingly expensive, long-term fight against said regime, see http://momentummachines.com/
3rd house and 2nd boat
(Full disclosure: For about a year I had two second-hand boats here in China - NZ-designed trimarans from http://wetamarine.com/ - great fun, not very expensive, and there's a scene around SF. I currently have zero real estate. ;)
Honestly, the housing cost is a severe impediment to people with families, unless companies decide to adjust for this in a real manner. But, the moment they do, pricing/rents will go way up.
The only real way to solve this problem is to not try to bring more people to the Bay Area. Defuse the rent seekers. Reduce the tech mediated inflation.
I don't think this will happen on its own. You'll need a crash of some sort for the area to find its real prices. And it is alarming talking to the recruiters, whom seem to think that housing prices will only ever go up.
This communal living is IMO, a symptom of the problem. It is not a long term solution. I don't know what is the solution. Though I should point out that there is a whole rest of the country which is relatively open ...