
No ‘For Sale’ Sign? Silicon Valley Buyers Aren’t Deterred - e15ctr0n
http://www.nytimes.com/2016/09/06/technology/no-for-sale-sign-silicon-valley-buyers-arent-deterred.html
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tptacek
This isn't a very substantive comment, but as a former (brief) resident of the
area, I'll make it anyways and take my licks for it:

It blows me away what houses in SFBA go for. They aren't very nice houses!
They're often cramped, the lots are tiny, the block landscaping isn't nice,
nothing is walkable, nobody is all that close to public transportation, the
surrounding areas are all strip malls and trunk roads, traffic is a nightmare.

At least when you over-pay for an apartment in Brooklyn you're in one of the
greatest cities in the world. What's, really, the upside of living in Palo
Alto? Palo Alto is nicer than Sunnyvale, I guess? But as a college town, it's
not even as good as Evanston, let alone Ann Arbor.

~~~
api
Count me as an extreme bear on SF/SV real estate. Three big factors here:

(1) How fragile is SF/SV's "tech capital" status?

SF/SV has no monopoly on talent. There are top engineers and devs everywhere.
What it has a monopoly on is smart investors who are willing to take risks and
top-notch accelerator programs.

It's ironic that the people who build the net can't use it to escape one of
the most absurd rent bubbles in the Western world. The problem isn't that devs
and founders aren't willing or able to do this. The problem is that investors
and mentors tend to be older people who are not "net natives" and are not yet
comfortable doing deals or mentoring remotely.

Younger angel investors -- or those who are more net-native and comfortable
with telework -- will already fund things far away, sometimes without even
physically meeting anyone involved. I see this happen regularly. Startup
crowdfunding is also going to add a new source of geographically unconstrained
capital.

As older VCs and older accelerator/mentor types who are not this comfortable
with the net retire and are replaced, expect to see way more of this...
especially since the real estate costs of SF/SV are a serious liability in
terms of runway and recruiting capability.

(2) The SF/SV housing crisis is partly political.

SF/SV are geographically constrained and earthquake codes do impose additional
costs on vertical construction. Those are indeed fundamentals. But the rest of
the "shortage" is political and is due almost 100% to self-serving NIMBY
resistance. That NIMBY base is being attacked from all sides now.

If the NIMBY wall crumbles, you'll see a construction boom to rival all
construction booms. Supply will flood the market. If this also coincides with
a dip in tech financing or factor #1 above coming into play, blood will be on
the streets.

Edit: another factor is foreign speculation, and if SF/SV (wisely) copies
Vancouver's new foreign real estate speculator tax that will help deflate this
factor too.

(3) Why again should I come to SF?

Back before this madness SF was one of the greatest cultural centers of the
world. It was quite honestly one of the _coolest_ places in the world.

Real estate hyperinflation is pricing all that out. The artists and musicians
and true 'hackers' and freaks and all the rest of the interesting people who
made SF great can no longer afford to live there.

So why again should I pay through the nose to live in what's rapidly becoming
a giant glorified office park for venture capitalists and big tech firms?

\--

My own anecdote:

We've repeatedly resisted coming up there. I did the math. Doing so would
triple our burn rate. We are "default alive" and growing today, but up North
we'd be dead eight months ago. (We being this:
[https://www.zerotier.com/](https://www.zerotier.com/))

Investors who are _not_ willing to invest outside SF/SV should just skip the
middle-man and cut checks directly to real estate speculators.

The rent I would personally have to pay (I have kids) would be about 10%
higher than my _total cost of living_ in Southern California... and SoCal is
_not_ considered "cheap" by any standard. Last time I checked out apartments
in SV I found a place that cost almost my total cost of living in SoCal where
the lobbies smelled like dog piss. I call Silicon Valley "the world's only six
figure slum."

The tech scene in SoCal is booming. Everyone I talk to says they have zero
interest in going North because "you can't afford to live there unless you are
rich."

Edit:

The parent is spot on, but I'd add this: while Manhattan is comparable to
SF/SV, New York as a whole is considerably more affordable. That's because it
has very good transit. You can easily live further away and commute into
Manhattan, and you can read a book on your commute instead of staring at the
butt of a car. You can also live without a car pretty easily in NYC and even
surrounding suburbs, which really mitigates the cost of living. You can only
do that in SF if you never want to leave the peninsula.

More and more people (and businesses) are wondering why they are allowing
themselves to be raped by real estate when geographic diversification is
_easier_ today than it has _ever_ been in all of human history. Seriously.
Think about this. These real estate bubbles as we move into the true broad
cultural uptake era of the Internet are like a bubble in fossil fuel prices
six months after over-unity nuclear fusion has been demonstrated. Such bubbles
have one and only one role: to allow smart money to exit and hand the
(burning) bag (of dog crap) to dumb money. Every time you read about how this
real estate bubble is permanent and will never deflate or how you are nobody
if you don't live in one of 3 cities remember that you are probably reading a
submarine ad sponsored by someone who wants to make sure they can exit at a
healthy profit before reality ensues.

(Side note: given the Moore's Law growth of solar and batteries and the
interesting progress in fusion I do wonder if the "peak oil" hysteria of the
past 10 years wasn't exactly that... a final profit taking and exit
opportunity for a soon to be obsolescent industry.)

In the long term SF/SV desperately needs a real estate crash if the region
wants to have any hope of holding onto its culture or any of the other things
that make it great. If a crash does not occur eventually the exodus from this
madness will reach a tipping point and the city will lose its soul forever.
Then the crash will still eventually come, but it'll be less like a correction
and more like Detroit in the 80s.

Edit #2:

To avoid perpetuating age-ism I must point out that I know people in their 50s
and 60s who are pretty "net native." It's a mentality thing. There is a bit of
an age correlation but that's because not everyone remains open to letting
their paradigm shift as they age. Ironically it is often the very successful
who have big egos and inflated images of their own intelligence who resist
this the most. It's one of the many ways that having a big ego makes you dumb.

~~~
linkregister
Zero Tier looks awesome and the Irvine area is great. Are you hiring? :)

1\. I think that SF/SV's status as a "tech capital" is not fragile. Even if a
dramatic push or pull happened it would be a slow drain. The dot-com crash was
a quick flush, but that was predicated on the market realizing a majority of
companies being revenue-negative wasn't sustainable. Google, Apple, Microsoft,
and Facebook aren't going anywhere in the next few years. Despite newspapers
reports of doom, most tech companies in the region are profitable. Tech
employees' families are sticky and won't move unless the push or the pull is
substantial enough to end friendships and uproot community ties.

2\. Agreed, the SF/SV housing crisis has a large political aspect to it. I
foresee it continuing indefinitely. Owners often immediately switch sides from
YIMBY to NIMBY once they get their deed. The area is more geographically
constrained than SoCal. Even if massive development were permitted, it would
take half a decade before price reductions started to occur. It would be
simple to plan this in a way to preserve the existing character of
neighborhoods, but it would require centralized planning; only dramatic
legislation at the state level would make this possible.

3\. You should or you shouldn't live in SF. SF's culture has waned
dramatically but Haight-Ashbury and Mission are still vibrant. I agree the SF
counterculture is on the decline. Oakland has a lively art scene though it is
also being choked by SF-like house price increases. I agree that it is at a
turning point where many different things could happen.

I think that a rational person might still move to the area due to the
feedback loop of successful companies congregating to where developers and
capital firms exist, and developers moving to the region to get jobs at good
companies. Though it doesn't feel like it to me, I can't help but admit it's a
_good thing_ because this price pressure will eventually push companies to
open campuses in other metro areas. In the meantime, we can only hope and
wait.

~~~
api
I agree that feedback loops are indeed sticky. New York has been the financial
capital for a long time and is likely to remain so for a long time, for
example.

I wasn't _necessarily_ arguing that SF will completely lose its "tech capital"
title (though nothing's impossible), just that SF real estate is overvalued
and that the craziness of this is likely to soften in the future as multiple
factors conspire against it.

... though I do have to say: we are in uncharted territory. I have to
reiterate that the Internet is young and is nowhere close to being fully
assimilated by the culture. The net makes geographic diversification easier
than it's ever been by orders of magnitude, and once more conservative
industries adopt it this could have massively disruptive effects.

To give you an idea of how big such shifts can be: in the 19th century
something like 90% of Americans worked in agriculture.

An effect of this magnitude could occur in relation to geography and place-
advantage. The initial visionaries of the Internet predicted this, but they
were overly optimistic about how long it would take. Personally I think they
might turn out to be right but it'll take another 10-20 years to fully
metastasize.

A maximum disruption scenario would be the "full virtualization" of centers.
No more financial, tech, etc. "center" in physical 3d space. These things move
to the cloud.

... and yes we are about to grow our team but our new team members are already
identified. :)

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jedberg
Prop 13. It's destroying the market here. People don't want to sell because it
could cost them dearly.

If I wanted to sell my house and move next door (our houses cost about the
same), besides the fees to the real estate agents, my property taxes would
literally double (from about 10K a year to 20K) and I've only lived here
(Cupertino, right next to Apple HQ) for eight years.

My neighbor, who has been in the house for 35 years, would go from 1K a year
to 20K a year.

Because of Prop 13, I'm highly unmotivated to sell.

~~~
linkregister
I agree that Prop 13 is destructive and an unfair wealth transfer from the
young and new residents to the house owners with seniority.

On the other hand, the only meaningful macro effect it can have is to reduce
liquidity and moderately buoy prices.

A family can't upgrade to a larger house without incurring the increase, so
they don't move. A family receives a better job offer... but the commute will
be too far so they don't accept it. A family wants to move, but they demand a
premium to sell to cover their increase of property taxes.

On the other end, a family buys a house that is far too expensive than
reasonable (6x income) but does this with the expectation that their frozen
property tax rate will not scale with their income and their property value.
Families that aren't willing to accept this default risk miss out on being
able to purchase in that area.

Both of these effects are bad but I think it only partially explains the
differential between house prices and annual incomes. I assert the overarching
reason is scarcity due to geographical constraints and insufficient
development. If Prop 13 were a primary factor, we would see high house prices
in the Central Valley and near Joshua Tree.

~~~
jedberg
> On the other hand, the only meaningful macro effect it can have is to reduce
> liquidity and moderately buoy prices.

Exactly. The article is about the lack of inventory. I was explaining why
there is a lack of inventory.

~~~
linkregister
I got sucked in by the dramatic language: "destroying" and missed the general
point you were making.

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Symbiote
When I lived in a nice part of London, I got letters asking me to sell the
house every week, sometimes more than once a week.

"Mr and Mrs Jones are both professionals, with two children at private school.
They are looking to move into this area. ... Properties like yours are selling
for over £600,000 on this road." etc.

I was renting, so obviously these all went in the bin.

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legohead
I've gotten a few letters from realtors asking if my house was for sale
because they had a client that really wanted to move into the area.

Out of curiosity, I contacted one of these realtors, and they asked me
questions about my house -- how many bedrooms, bathrooms, detached garage,
etc. When I said it was 2 bedroom, she said "oh, well, my client wanted a 3
bedroom. but since you are thinking of selling anyway..." \-- it felt like a
scam, like they were just trying to see who was willing to sell their house so
they could be my realtor.

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spullara
Every comment in here seems to be missing the obvious. Palo Alto, Menlo Park,
Mountain View, Cupertino and San Francisco have the most successful companies
in the US/world. Further, the concentration of talent feeds back on itself as
people that move here get addicted to the fact that they can meet with almost
anyone in the tech world that matters in an hour. Hell, when people visit me
in Los Altos I take them on a driving tour where we check out Apple, Yahoo,
Google, Facebook and finally through Palo Alto to Stanford before getting back
to my house in about an hour. If you are a developer you should move here and
leverage the network that exists. I moved to SF in 1996 to be a software
engineer at WebLogic from consulting in Chicago and I can tell you that
remotely working for some company would never, ever have given me the
opportunities that actually meeting with people in the Bay Area has given me.

Further, my kids go to Cupertino public schools and they are some of the best
in the nation. It is amazing how stringently they enforce the residency
requirement, even to the point of visiting the homes of students who they
suspect don't live in the district. Palo Alto schools are also very good
though lots of people send their kids to the private schools there and in
Menlo Park.

Someone also mentioned the outdoor opportunities. It is amazing how close the
wilderness is to almost anywhere in the Bay Area. I can get to the beach, the
mountains, or a redwood forest within an hour.

~~~
karma_vaccum123
This needs to be reinforced. Go look at Fortune's list of the world's most
valuable companies. Those that are American are all located with a one-hour
drive.

I live near a ton of Apple executives. They have moved here from all over the
world. Simply put, if you want to work at (for example) Apple and have a
significant position in the company, you _must_ be here. Must.

~~~
AstroJetson
Fortune Top 10 - Walart, AK / Exxon, TX / Apple, Cupertino CA / Berkshire
Hathaway, NE / McKesson, SF CA / United Health Care, MN / CVS Health, RI /
General Motors, MI / Ford, MI / AT&T, TX.

Only two in CA, the rest are scattered over the US. But if you had to pick
another place to live, looks like Detroit would be a good choice.

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gfo
I'm curious... what has this done to the job market for those who aren't in
tech?

Where do the nurses, garbagemen, policemen, etc. live? Their salaries are not
nearly that of those in tech so I can't imagine these prices wouldn't lower
the number of people in essential non-tech jobs in the area (unless they're
willing to suffer through the commute).

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RyanMcGreal
This phenomenon is not peculiar to super-heated markets like Silicon Valley.
We've had several people cold-visit us to see if they can buy our house, and I
live in Hamilton, a mid-sized Southern Ontario city around 90 km west of
Toronto.

Our real estate market has certainly picked up over the past several years
(after decades of being severely undervalued), but median house prices are
still less than half of what you pay closer to Toronto.

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venomsnake
Everything becomes for sale, given the right price.

