
The Rise of Bay Area Rents - lambtron
http://priceonomics.com/the-rise-of-bay-area-rent-prices/
======
comrade_ogilvy
The other way to look at this is apartment rental prices are merely
"correcting" upwards to be less out of line with the housing prices.

A $1 million SF home has to charge $6000 in rent each month to break even, to
cover cost of capital, taxes, and maintenance. Apartment rents cover utilities
to varying degrees, as well.

A nice three bedroom apartment is the equivalent of a $600k or $800k condo,
which "should" charge $4000+ per month. What is the going price for that
rental? Across the bay area, the median is $2500. That makes sense in San
Jose, but in other areas, not so much....

So is the issue that house prices are unsustainably high? Or is it the renters
have gotten used to prices that lingered unsustainably low for a surprisingly
long time?

IMO it is a bit of both. But we have probably under built rental units in some
markets.

~~~
usaar333
May I ask where you got the rent to ownership conversion numbers?

I ran this awhile back with the nytimes buy-rent calculator:
[http://www.nytimes.com/interactive/business/buy-rent-
calcula...](http://www.nytimes.com/interactive/business/buy-rent-
calculator.html)

With a 4.8% mortgage rate, 20% down, 37% marginal tax rates, 3% inflation,
closing/buying costs around 3%, 9% rate of return on capital and ~$700/month:

Buying a $600k place is break-even with renting at $2500/month after 4 years
and buying is better thereafter. $800k is break-even at around $3300/month

There is government distortion playing in. The mortgage tax deduction (esp. in
a state with high income tax rates) provides huge incentives to buy. $4,000 a
month in rent is only equal to $800k buying if you are below the 15% income
tax bracket.

------
nugget
It's a gold rush. California is famous for them. Quality of life for most of
the tech workers is pretty low, but everyone is focused on the stock option
lottery, and there are plenty of winners (next up: Twitter) to keep up faith
in the system.

Ironically, most of my friends who have liquidated their options end up moving
out of the city.

~~~
GuiA
>Quality of life for most of the tech workers is pretty low,

Can you expand on this point?

~~~
nugget
Quality of life is low in the sense that they are paying a huge % of monthly
income in rent and usually sharing sub-standard housing accommodations. They
don't save much. They work a lot and rarely have time to enjoy the area.

Quality of life is high in the sense that they enjoy what they are working on
and feel like there's a decent chance it will make them rich. They are in the
middle of a boom and millionaires are being minted left and right. They now
have friends they went to school with, who they know well, who have millions
of dollars in the bank who rent yachts, vacation in Ibiza, and bang models in
Las Vegas (while plotting angel investments and new startups). They feel very
close to an indescribable grandeur and if they just keep grinding away they
will get there.

So in some ways it sucks, and in some ways it's awesome and they will look
back on this period as the best time of their lives. But very few of them
think about this as ''real life'' the way people elsewhere in the country seem
to, when they think about what community they want to live in, who they want
to date or marry, where their kids will go to school and how their life will
unfold in the decades ahead of them.

~~~
shortsleeves
I can't relate to this at all. I'd argue that the quality of life is actually
much higher here. Even with longer work hours.

Sure rental prices suck, but to name a few things:

* Weather is amazing. * Wages are higher than anywhere else for my profession. * The quality of food/produce is better than anywhere else I've lived, year-round. * Within a 4-hour driving radius, I can be skiing, surfing, hiking or tasting world-class wine. * Easy to meet up with like-minded people.

~~~
enscr
Exactly. Any place that has high quality of life + young life will have high
rents naturally.

------
needacig
This is the third or so time this blog has been posted to HN and every time
people ask where they got their data and every time there is no response. This
time, some of their data doesn't look so good, at least with the boundaries on
the map being all messed up. Also it's not clear if they adjust for inflation.

~~~
omarish
(I work at Priceonomics)

Sorry to hear the map boundaries are looking weird to you.

We're using US Census boundary shapefiles to draw the city limits. This is how
the map should appear:
[http://i.imgur.com/xk8WI6Q.png](http://i.imgur.com/xk8WI6Q.png) \- does it
look different on your end?

Email me if there's anything else I can do -- omar@priceonomics.com.

~~~
teddyh
You completely (again!) ignored his question about where you get your data
from. That was extremely rude of you.

~~~
jamesaguilar
Is it really rude to not answer a question? I guess it is a little rude to
ignore it. He could say something like, "I'm sorry, but I can't answer that
question."

------
gphil
We actually recently made a similar map for a number of metros, normalized by
square footage to control for different unit sizes. It's interesting to note
the differences in the map between the two metrics (total rent and per sqft):

[https://kwelia.com/maps/choropleth?metro_group=SF+Bay+Area](https://kwelia.com/maps/choropleth?metro_group=SF+Bay+Area)

~~~
heydenberk
This is really awesome. I'm also curious to know where you got your data from.

~~~
gphil
Thanks!

We currently get the majority of our data from publicly available online
listings (predominately from [https://3taps.com/](https://3taps.com/) and
[http://www.rentjungle.com/.](http://www.rentjungle.com/.))

Increasingly, we are also adding actual data from integrations with our
customers' property management systems. We think this data set will be more
accurate and more valuable, although it obviously takes a lot more work to
build.

One of our goals is to be able to understand the difference between listed and
actual prices in various markets.

------
mehuldesai
Would have to disagree on everyone being focused on the stock option lottery.
1st its not a lottery. You can do analysis that shows that working for large
entrenched dominate company, think Apple, Google or such over 5 years will
beat a engineer joining a series B,C company that makes it. For startups there
is often a trade of salary for ownership. If you calculate it over many years
and payrises, bonus's etc... the numbers may play even.

Many many people in the Bay Area are not in startups at all and not playing
the option lottery, they are married with children. Some play the management
ranks and others contract, etc... I met a woman once in the dot com boom that
confided in me that she made $1mill in 2000 over a short time. It got me
thinking about the real equations at work. You need to do math, simple math
but you need the data which you may not have.

Anyhow, that said, it is true I think that engineers do not get their fair
share of equity many times in companies even with dozens of people. So this is
when ownership or foundership or close to starting is a stock option play.
Options are a contract to own at a price set on the contract. If the price
rises dramatically you have a massive amount of capital. Stock options are
very risky, compared to straight risk adverse salary jobs. For risk there is
reward. It has not much to do with lottery, manly with risk and reward and
statistics. You need to crunch the numbers and consider risk and then decide
on your career paths.

~~~
viscanti
> It has not much to do with lottery, manly with risk and reward and
> statistics.

A lottery is risk, reward, and statistics.

------
RobotCaleb
A scale that goes from green to red? I'm unable to discern the difference
between colors evenly spaced on either side of the middle line.

Mousing over to see change does help. Perhaps instead of simply colors
(please, designers, don't rely on color alone to convey information. Think of
the chil^H^H^H^H color blind individuals) you could have patterns for the
fills.

------
ChuckMcM
It will be interesting to bookmark this, and then look at it 18 months from
now when the market grows by about 28% (number of rental units in the SF bay
area expected to come available due to new construction) SF itself has a huge
number of apartment projects being built, as do many peninsula cities.

~~~
DanBlake
Not sure if you are implying there will be 28% more rentals available in 18
months than there currently is, but thats totally untrue. There is about 135k
current apartments in SF.

About 8,000 new apartments, mostly in mid-rise and high-rise buildings, will
come on line between now and 2015. Thats around a 6% increase.

However, remember that we also have population gains in SF right now from
incoming tech workers. Prices in rent are very unlikely to go down, however
they will most likely stabilize.

You may be saying that more properties are going to be available around SF,
but that has never changed value in SF before (oakland boom, for instance) and
instead just made those surrounding areas go up.

~~~
ChuckMcM
New building permits in the nine bay area counties. Not just the city of San
Francisco. I'll see if I can track down first hand sources for the summary I
read.

------
jbdeboer
I'd be interested to know how they are collecting their data. Rent prices are
very hard track, short of asking tenants how much they pay.

You can monitor Craigslist, but then you are tracking rental advertisements
instead of what tenants are actually paying.

~~~
sliverstorm
If you want to account for actual pay vs. advertised, you could probably model
it to some order of effectiveness by applying a decay function of price vs.
age of listing. This operates on the assumption that bargain rentals are on
the market briefly, while overpriced rentals languish on the market.

------
Raphmedia
I'm no longer jealous of all those american dev that makes 100k+ in that area.

Damn... 3000$ to rent... for a MONTH?!

I could get one hell of a house here at that price...

~~~
msoad
I know five guys living in a 4BR in Palo Alto and they pay $1200 each. All of
them are devs that make $130-$150.

If you are single or willing to leave cheap there is good options

~~~
russgray
5 guys in a 4BR? So are two of them in a relationship and sharing a room, or
is one paying $1200 to sleep on a couch?

~~~
ffrryuu
Welcome to SF.

------
ffrryuu
Time to move to Texas.

~~~
jtreminio
It's a very pleasant 96*F today!

~~~
w1ntermute
Air conditioning's been around for 100+ years. Start using it.

------
Brig303
Interesting! So why are rents on HUD a lot lower? e.g., the rent for 1 BR in
SF is $1579 according to
[http://www.huduser.org/portal/datasets/50per.html](http://www.huduser.org/portal/datasets/50per.html)

~~~
usaar333
Good question. It's not clear where there data source is coming from (well,
their own service, but where is that coming from?). Data source is important:
Using craigslist for instance will ignore tons of places on the low end
causing distortions.

------
wavesounds
Are there any studies relating rent control and pro/anti landlord policies in
these cities and how they relate to the availability of inventory and rental
prices in the bay?

------
outside1234
You should come live in Santa Cruz. Ocean, mountains, cheaper. We have a tech
scene here - really!

~~~
rhizome
Santa Cruz is historically low on rental inventory and (notoriously) low on
local jobs. How has this changed in the past 10-15 years?

~~~
outside1234
Telecommuting.

------
gaustin
Why don't people live in Oakland and commute?

Google Maps gives a < 1 hour each way commute (BART or bike + ferry), which I
don't think is horrible. Is Google Maps just super optimistic?

~~~
fourstar
You don't think people already do this?

~~~
gaustin
I know people already do this. My intent was to ask why it's not the default
for people who would save $1-2k every month. It seems the assumption is
working in SF means living in SF for software developers making > $100k/year.

