
Silicon Valley Poverty Is Getting Much Worse Amidst Insane New Tech Wealth Boom - rmah
http://www.businessinsider.com/poverty-in-silicon-valley-2013-3
======
api
This is one reason I don't live in The Valley, and I am by no means poor.

I'm not an economist, but it really seems like there's a very perverse
economic distortion that takes hold when the relative wealth of a region
exceeds a certain level. The problem is emergent from two facts:

(1) We almost always finance real estate on credit.

(2) We use real estate as both a store of long-term savings _and_ an
investment whose value is heavily leveraged and is dependent upon the value of
neighboring real estate.

As a result, real estate acts like a sponge. When a region accumulates wealth
beyond a certain point, it results in runaway real estate hyperinflation. This
in turn forces people to put more and more wealth into real estate, as well as
tempting people to engage in real estate speculation. This in turn feeds the
cycle, and drives up rents for non-owners.

This does several bad things. It prices out the not-already-rich and destroys
the engine of class mobility that often created the wealth in the first place,
prices out artists and others who contribute to culture in a less financially-
centric way, and soaks up wealth that could have been used more productively.
Instead of founding the next startup, a significant chunk of money ends up
sitting in real estate to prop up the leverage bubble.

Edit: I thought of what _might_ be a more economically-correct way of saying
that. Real estate is a liquidity trap.

Finally, it's a ticking time-bomb. If the region's fortunes ever falter,
everyone ends up massively underwater. Bay Area residents be warned: Detroit
once had the highest average wages in the USA. It was the Silicon Valley of
its time. Detroit had other problems the Bay Area isn't likely to have, but
some significant fraction of its woes can be tied to the collapse of its real
estate market and all the perverse follow-on effects this has. When real
estate starts to go south in a big and long-term way, it _really_ ruins a
region's finances.

P.S. I can't help but shake the feeling that the only winners from the above
arrangement are banks.

~~~
yummyfajitas
There is a third fact which also plays an important role - land use
regulations.

Logistically it's fairly easy to expand the supply of housing, particularly
cheap housing - build bigger buildings and fill them with tinier apartments.
But good luck getting the legal permissions to do this.

~~~
pfedor
Zoning laws seem like one example of a regulation that genuinely prevents the
tragedy of the commons. If one person built a twenty story house on their
property, that person would get rich and all their neighbors would be slightly
worse off. If everyone did that, the business owners and VSs would move
somewhere with less traffic and fewer neighbors, the software engineers would
follow and Palo Alto would become just another slum.

~~~
yummyfajitas
Their neighbors are slightly worse off, and 20 people have a place to live.
But I guess those 20 people don't count, right?

~~~
pfedor
_Their neighbors are slightly worse off, and 20 people have a place to live._

That is what happens when only one landowner chooses "defect". If all of them
do it, then 20 people times the number of lots might find a place to live,
except it's no longer the kind of place where they want to live.

Or put another way, there is already a lot of places where you can live
cheaply, it's just that a lot of people would rather live in Palo Alto than in
those places. But if you turn Palo Alto into a housing project, then the
reason why they want to live there might stop existing, because all the rich
people, who are the reason the rest of us want to be in the Silicon Valley,
likely prefer not to live in close vicinity to "bigger buildings filled with
tinier apartments."

Of course I don't have a glass ball and cannot know for a fact that's what
would happen, but it doesn't seem far fetched and at least personally I find
it no less believable than many other tragedy of the commons situations which
are posited to justify this regulation or that.

~~~
yummyfajitas
_If all of them do it, then 20 people times the number of lots might find a
place to live, except it's no longer the kind of place where they want to
live._

If that were true, why would people bother building so many apartments? Are
investors just a bunch of idiots?

People want to live in Palo Alto because there is a cluster of a certain type
of people there. If you allow more people to live in Palo Alto, those network
effects become bigger.

Manhattan is the limiting case (at least in the US), and your scare story has
not occurred. Rich people like living in NYC.

------
nakedrobot2
I live in Prague. Rent for a family of 5 including all bills is $1100 (ok, we
live somewhat modestly, although we live near the center of the city, near the
metro and tram stops, and 10 minutes walk from a _castle_!)

It makes me sick that people in Silicon Valley think you have to live there to
get investment and run a start up.

~~~
cglace
I also find it counter to the whole "lean startup" philosophy everyone
espouses. You would think being lean would apply to their cost of living as
well.

~~~
nahname
Lean doesn't mean on the cheap. It is about focusing on only the most valuable
parts first. There is value in being around like minded peers. It is
energizing just to be in the valley. There are millions of early adopters
there. This may seem like a small thing, but it can be the difference between
being eager for the next day of work or being eager for the end of the day.

~~~
cglace
If I'm not mistaken the whole concept is that any startup has a limited
runway. Focusing on the valuable parts allows you to quickly test a hypothesis
and pivot if it doesn't work. Living in a really expensive area is going to
reduce the number of times you get to pivot.

------
tzaman
I live in Slovenia. In a village. My living expenses are less than $1500 per
month (a family of 5), all bills included (phone, internet, heating, food,
water and electricity and child care). While I do have a dream of coming to
Silicon Valley some day (I guess it's every hacker's dream destination), it's
just not cost effective for me at this moment. In english: I can't afford it.

So the question is, why people even bother living in one of the most expensive
regions in the US/World? What's wrong with living in some remote village, as
long as basic life necessities are available? I know people (most of them
senior folks) that live in our capital (Ljubljana), and whine about not having
money while owning a house in a city center that's worth more that they could
spend in a lifetime should they choose to live in an inexpensive countryside.

~~~
mbesto
Simple. There are certain characteristics to business that require real in
person relationships. In fact many of the businesses that exist that you never
hear of on HN are exactly like like this.

SV is great for 3 things:

1\. Insane amount of capital to growth (and to exit big)

2\. Access to $120k/yr+ salaried Stanford/MIT grads (among others)

3\. Tech-savvy early evangelists

If your company doesn't need these things to survive, stay far away from SV.
It's not worth it. There are however other areas that possibly have all 3, but
not to the extent of SV. The ones I've personally identified are Austin (US),
London (UK), Stockholm (SE), and Berlin (DE). What you get in return is
cheaper cost of living (London and Stockholm, you just need to live further
outside the city) and therefore cheaper wages.

~~~
ahoyhere
I take issue with #2. Lots of people don't want to live in SF/SV… especially
given the way the cost of living eats up those "piddling" $120k/yr salaries.
Living elsewhere and working on your ability to hire/manage a remote team
would be a way to serve an underserved market -- great tech talent that values
community & family ties, and economical use of their money.

~~~
mbesto
My point is that it reduces risk. Can you find the same quality dev from SV
for $120k/yr and Malaysia for $15k/yr? Absolutely. But the chances of that
happening from SV are much higher, so you pay for that comfort. It also
doesn't negate the fact that terrible developers do in fact live in both
locations.

Personally, I believe in finding the best team wherever they are in the world.
But, unfortunately that's not an easy thing to do.

ps- just saw you are the creator of <http://everytimezone.com/> I have it
bookmarked and constantly use it. Thanks for developing!

~~~
ahoyhere
I don't think it really does reduce risk. I've worked with more than a few
terrible developers who have exemplary-looking college and startup pedigrees.
One of the worst developers I ever worked with graduated from a top school and
left Y! (back when they were neat) to join my (very much former) employer.
This guy thought the height of programming was using PHP's raise error
function as GOTO. _Gag._

And I never said a thing about Malaysia. I am highly skeptical about
wage/currency arbitrage.

I'm talking about the smart people who'd prefer to live in their
hometowns/states, or with their spouses/mates who need to move for their job,
etc., around the US, Canada, and some other Westernized countries.

A dirty, crowded, expensive city isn't everyone's cup of tea. Not everyone
gets a nerd-on about being surrounded by other "ambitious" 22yos in what is
essentially a monoculture. Not a thing on earth could lure me to live in San
Francisco, for example.

There are a lot of people out there who agree with me, and those people can't
be hired for $15k, but they can be hired for $85-120k, and in most cases, if
you are savvy about managing, they can produce great work remotely.

~~~
mbesto
I think we're in full agreement on this one. For example, I'm American living
in London, with a graphic designer from Russia living in Liverpool and a
developer from Belgium living in Spain. In no way have our backgrounds shaped
or reduced my risk of building that team...they are just simply good at what
they do, so we work together.

 _I've worked with more than a few terrible developers who have exemplary-
looking college and startup pedigrees._

My point is that on a macro scale it does reduce risk. Otherwise these
ambitious 22 year olds making $120k+ wouldn't exist...

------
michael_miller
Part of this is likely due to building restrictions. For example, Palo Alto
has a 50 foot building limit [1]. If developers were allowed to build 20-story
apartment buildings, it's very likely that housing prices would plummet.

[1] <http://www.paloaltoonline.com/news/show_story.php?id=27136>

~~~
fzzzy
The quality of the available housing in the Palo Alto/Mountain View area
(crappy 50s/60s construction) plus the obscene prices make me sick. I just
moved from Mountain View to escape this twisted market. I'm extremely lucky I
work for a company that does a really good job of supporting remote workers.

------
brown
It's 7am PST, and most of the comments here are "I don't understand you
silicon valley people, that doesn't make sense". So, I'll share my two cents.

I'm from a modest background in the Midwest. My first tech job was in Seattle
(better than SV, but still not "cheap"). I then lived in Beijing, Boston, and
Manila before coming to SV. I spent 1 year in Palo Alto, and now 2 years in
San Francisco.

I was originally VERY against it. My wife basically dragged me here kicking
and screaming. I've always thought of Silicon Valley as this giant bug zapper,
where people are lured in by the promise of extreme success, and then get
zapped by a culture of 95% failure at startups.

Now I'm a huge fan. Here are the main two reasons:

1) First, a mitigating factor. The salaries are actually pretty well adjusted
for cost of living. You're getting a fair deal compared to other tech cities.
Market forces are doing just fine.

2) The number of people in tech here is simply unparalleled. Head and
shoulders better than any other city on the planet. That might not seem
important, but it is surprisingly powerful. You have access to a huge network
of people. Whether you're trying to get a job at big co, or doing a startup,
access to a network of people turns out to be a significant contributor to
success.

PG's essay on SV is spot on. I scoffed when I first read it, but he is right.
(<http://www.paulgraham.com/siliconvalley.html>)

The main problems as mentioned by the original article:

1) Homelessness – IMO, this is due to lack of proper institutions for mental
illness and substance abuse, not housing. SF is a ridiculously liberal city,
and there is plenty of low income housing.

2) Real estate prices – If you are buying a home today, it is very painful.
However, due to CA's limited growth property taxes, it is quite affordable for
the majority of residents who have been living here for life. That results in
a clever form of progressive taxation.

~~~
akgerber
_2) Real estate prices – If you are buying a home today, it is very painful.
However, due to CA's limited growth property taxes, it is quite affordable for
the majority of residents who have been living here for life. That results in
a clever form of progressive taxation._

That's not progressive taxation. Most long-term homeowners in expensive areas
of California do, in fact, own at least one extremely valuable asset, which
makes them wealthy. Since these wealthy people are paying low property taxes,
other people need to pick up the cost of city services: younger, poorer folks
with less home equity (the form most middle-class wealth takes) or none at
all. That sounds like regressive taxation to me.

------
kiba
Solution: let silicon valley build more housing.

~~~
rayiner
Seriously, this. It's one thing for Hong Kong or Manhattan to have high
housing prices. It's something else for a fucking suburb to have high housing
prices.

~~~
kiba
We'll have one hell of a housing boom, and there will be more of everything.
At least until we run into infrastructure issues such as providing enough
water for everyone. Or perhaps we will have cogged roadways. (Although that
probably mean we can start building subways that pay for itself.)

Also, it will let entrepreneurs and startups live on ramen noodles more.

~~~
fzzzy
The roadways are already clogged. Imagine what it would be like if they
actually built enough housing.

~~~
wtracy
I would hope that the roadways would be less clogged if people didn't have to
commute ten miles.

------
sologoub
Homelessness is an extremely complex issue. As is poverty. This article seems
more sensationalist than anything. They lumped several issues together here to
create content that sells.

Three key issues raised: homelessness, racial inequality (referring to
Hispanic wages), and general income distribution inequality.

General income inequality and the racial flavor touched are likely related to
several factors, such as education/line of work and workforce mobility. While
you can ensure that people have better jobs through education/training
programs, combined with job placements (both extremely non-trivial), people
from poor areas will always gravitate to wealthier areas. This has nothing to
do with racial/ancestral traits or anything other than people seeking
employment in the wealthier areas that are more likely to provide employment
opportunities. So, effectively, no matter how good your programs are, you will
always have some group that needs help. This is why it's important to focus on
a long term, sustainable approach to education and training. There is no
silver bullet here, unless you can magically impart that knowledge on every
living human.

Homelessness is a completely different can of worms. If you have ever worked
with long term homeless you will know that only some actually want to return
to "normal" life. I put the word normal in quotes because the perception of
what normal shifts. In a conversation that stuck in my mind, one person I
spoke to referred to how I live as slavery to money/worldly possessions. I'm
sure this is not the sentiment shared by the majority, but it illustrates the
complexity of the issue. If we truly pride ourselves in having a free society,
we then cannot force a certain way of life on people. What we can and should
do is offer support and a way back if people so choose.

Personally, I'd like to see us provide more incentives to wealthy individuals
and corporations in supporting educational and other programs to help. An
extra tax benefit for keeping the money in US and a solid dose of public
support and encouragement. Somehow as a society we love stories of
billionaires donating money for causes in Africa or another impoverished
place. This public opinion is a strong incentive. If it shifts toward more
support at home, the money will follow.

------
joonix
There's a great irony in the liberal/conservative (left and right) dichotomy.
On the one hand, you have left-leaning people who build their platform on the
premise that they are champions for the poor and lower/middle classes and
multiculturalism, while the right-wing is perceived as only looking out for
the wealthy white people.

And yet, I can't help but compare one left-wing enclave to a right-wing one.

The Bay Area always shocked me as to how segregated it is, with whites and
upper class people living in their suburbs with almost all blacks living in
Oakland and the lower-income whites living in suburbs that are oppressively
distant from job-centers. And the Bay Area has a housing affordability crisis,
while at the same time being surrounded by plenty of land and low-density
building that could be built-out to increasing the housing supply and thus
affordability. But, this doesn't happen because the local incumbent
populations are extreme NIMBYs.

NYC deserves a mention, too, because while they are limited on space on which
to build, there's still lots of low-rise stock that can be replaced with much
denser development, but gets blocked due to NIMBYs and historical protections.
I can sympathize with wanting to preserve the historic aesthetic, but we could
at least find a few locations to build a massive development to disrupt the
housing supply and bring down prices.

I compare these with the so-called right-wing bastion I grew up in, Houston,
TX. In Houston, whites and blacks live in close proximity, they shop at the
same stores and malls, they actually interact in daily life. Wealthy
neighborhoods are directly across from lower-income neighborhoods. More
importantly, housing is affordable. There are almost no restrictions on the
housing market: you can tear down and build almost anywhere. Middle class
families can afford to buy houses.

I'm not arguing for one philosophy or the other; nor am I saying I'd rather
live in one place or the other (I'd live in the Bay if I made $200k, I'd live
in TX if I made $50k), I'm only pointing out the irony and that a lot of these
political diehards are full of crap.

There are simple solutions to the affordability crisis in SV and SF, but
NIMBYs and protectionists would rather see the poor suffer rather than risk a
decline in their property values.

~~~
api
In heaven, conservatives are in charge of economic policy and liberals are in
charge of social policy. In hell it's the other way around.

------
typicalrunt
Funny that these numbers are touted as being bad. In Vancouver the median
price of a home is around $900k, we have high taxes, high fees for everything
(cellphones etc.), rents are around $900-$1000 per bedroom.

And the kicker of it all is that the average family salary is a laughable
$70k.

~~~
potatolicious
As a Vancouver native who's since lived in Toronto, Seattle, SF, and now NYC,
you guys _really_ do not have it that bad.

The ratio of rent to purchase price is low, which means for those who cannot
afford to buy (which is, at this point, nearly everyone who isn't an oil
sheikh or Chinese industrialist) the renting path is not bad at all.

The rent "per bedroom" is not $900-1000. It's only $900-1000 if you want to
live the urban lifestyle in Yaletown or the West End. For bedrooms in suburbia
the proportional rent (i.e., per bedroom) is lower. Which is to say, the run-
up in Vancouver rent (what little there has been) has mainly impacted those
who can afford it most (read: those without children).

Median family income in San Francisco is a "laughable" $72K, while studios run
north of $2500 and one bedrooms bust the $3000 per month ceiling. _That_ is a
wealth gap. The demographics in that city have become "tech workers" and
"everyone else", with even basic subsistence in the city becoming untenable
for many who have been there for decades. Vancouver is (delightfully) free of
such a stark dichotomy.

Seriously, you guys live in a veritable paradise - economically, socially, and
yes, in rent too. It gets _much, much_ worse out there.

~~~
JPKab
"For bedrooms in suburbia the proportional rent (i.e., per bedroom) is lower.
Which is to say, the run-up in Vancouver rent (what little there has been) has
mainly impacted those who can afford it most (read: those without children)."

Why is it that people are expected to live in the suburbs when they have kids?
I find this to be a uniquely post WW2 North American view, and a stupid one at
that. For those of us with kids who would like to live a walkable life style,
these rises in rent are not limited to "those who can afford it most."

~~~
potatolicious
This is as much an expectation as it is an expressed preference. Note that I'm
not presenting any value judgment on it - as a staunch urbanist I'd like to
see raising families in urban centers be more of a _thing_ \- but that is the
reality as it stands.

In Vancouver, families go into the burbs - whether or not this _should_ be the
case or what we can do to change this reality seems orthogonal to the main
point: that rent increases are not impacting families as much as singles.

Also, keep in mind that Vancouver's urban core is _really, really small_ \-
roughly 2.5 sq. mi by my estimation. In this core is the hub of the city's
nightlife and a huge attraction for the bridge-and-tunnel crowd - not exactly
the most family-friendly environment. There is a substantial lack of urbanism
in Vancouver that is separated from the lifestyle of early-mid 20-somethings.

~~~
dagw
_This is as much an expectation as it is an expressed preference_

How much of that is due to money though. I have a kid, live in an apartment in
the city and shudder at the concept of moving the suburb. However if you want
at least 3 bedrooms, a reasonably safe, kid-friendly neighborhood and access
to good schools then you have to pay a lot of money, certainly more than I can
reasonably afford with burying myself in way too much debt. Everybody I know
(with one or two exceptions) who's moved to the suburbs has done so for
largely financial reasons. Had prices in attractive areas in the city been
lower they quite probably would have stayed.

------
RougeFemme
It's unfortunate that there aren't more jobs in lower-cost areas that the
poorer people could move to. Then the poor and unemployed would have jobs and
shelter- just as important - the rich would be forced to pay their service
workers living wages. And yes, this is simplistic and there are the
sociological/ issues of why people _dont_ move. . .and the impact of the
increased service wages on the economy. . .and the fact that the curret
economy sucks so we can't have a mass migration to the land of the jobs.

------
arbuge
Silicon Valley works great if you can tap into it to raise seed/VC funding.

If not you're pretty much screwed. You're in California, which is a bad place
to do business in general - think insane regulations and a 10% state income
tax. And in the Valley in particular, tech workers will cost you significantly
more than in other parts of the country, let alone the world.

------
pshin45
There's a startup idea in here somewhere...

Perhaps an Airbnb exclusively for new startup founders which offers affordable
long-term housing in SF/SV in return for a small amount (1~2%) of equity?

Given that this is a huge problem that all of us here face or have at least
had to contemplate, and will only continue to get worse, it seems worth
trying.

------
matterhorn
Interesting that they don't just move somewhere else. In any case, lower your
taxes, reduce state and municipal spending, and reduce state regulation of
business. A federal repeal of PPACA would also be very helpful. I can't
imagine living in California.

~~~
potatolicious
> _"Interesting that they don't just move somewhere else."_

"Somewhere else" in the USA is the difference between "when can I try out your
product?" and "you quit your well-paid job at a stable company to _DO WHAT_?"

Entrepreneurship can be a lonely life, do you really want it to get lonelier?

The concentrations of people who "get" startups in the US is also closely
aligned with its expensive cities: SF, NYC, Boston, Seattle, etc.

------
10dpd
I find it interesting that no one commenting here actually lives in the Valley
at the moment (probably due to the time difference, its around 7am.

If you are into tech, the Valley is the best place in the world to live right
now, the price is being driven up by demand for a reason.

