
The Housing Market With Nowhere to Go but Up - samsolomon
http://bits.blogs.nytimes.com/2014/03/02/the-housing-market-with-nowhere-to-go-but-up/
======
steven2012
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.

~~~
_greim_
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
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.

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

I don't follow this at all. Are you suggesting that restaurants would simply
disappear from SF _entirely_? Or that locals would never go to restaurants? It
seems much more likely that restaurants would just get more expensive during
which time there would be some churn and turnover in the market.

------
wyclif
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.

~~~
SamReidHughes
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.

~~~
wyclif
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.

~~~
dllthomas
I'm not sure the companies moving there think "good employees" can want to own
a home or have children.

------
LogicX
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](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!

~~~
dfc
WhyNotTheBeach.com? Answer:

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

~~~
LogicX
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...](http://www.dnr.sc.gov/climate/sco/Education/facts/historical_hurricanes.pdf)

~~~
dfc
For those to lazy too click link:

    
    
      Hurricane  Hazel:  October    5-16,   1954
      Hurricane  Hugo:   September  10-22,  1989
      Hurricane  ____:   ________   ____,   2014
    
    

I realize this is not how storms work, but hurricane was the first word that
came to mind when I read "Why Not Myrtle Beach."

------
greenyoda
"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.

~~~
repsilat
> "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.)

~~~
greenyoda
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.

~~~
muzz
The last real estate bubble was fueled by the ready availability of credit
(subprime loans, Alt-A, etc).

These buyers today are often paying cash-- i.e. they are on the _opposite_ end
of the risk spectrum. They have no incentive to walk away if their house value
falls 10%, 20%, 30%, etc.

------
melling
“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
Egads. The capital expenditures.

~~~
wyclif
And don't forget the infamous SF NIMBYs.

~~~
mjn
It's one issue, but I think you could overcome NIMBY opposition if the money
were there. Even traditionally transit-averse LA (finally) managed to overcome
the NIMBYs who had blocked the purple line in the 1990s, and is building it
now. But the cost of the transit that could usefully be built in the SF Bay
Area is really high, so high that it's never really had serious funding
prospects and made it to the political-wrangling stage. For example, the
transit situation within SF would be a lot better if a crosstown subway
replaced the N-Judah or the Geary bus, but there aren't any current prospects
for funding such a thing, so the Geary BRT is being built as the low-cost
option.

The BART extension to San Jose is also mostly hitting cost issues rather than
NIMBY issues. It's currently going to extend to... almost San Jose, the north
outskirts, because the funding secured so far isn't enough to build the final
portion through to downtown and connect to Diridon.

------
31reasons
Such an irony. People who are creating the mobile future are not embracing the
mobility and cramming into one spot.

------
rdl
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
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.

~~~
rdl
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_.

------
kiba
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
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
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.

------
kleiba
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.

~~~
dragonwriter
> 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.

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

EDIT: Disarmed previously snarky response.

------
josephlord
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).

------
pyrrhotech
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

------
arbuge
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.

------
joesmo
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.

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

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

------
reallysmart
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.

------
smartestone
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.

