
Home Values Are Rising by $800 a Day in San Jose - nopriorarrests
https://www.bloomberg.com/news/articles/2018-04-09/home-values-are-rising-by-800-a-day-in-san-jose
======
taurath
I have a pretty large group of generally geek-oriented friends across most of
the western US, and tracking their migration patterns has been fascinating -
we're basically all 1980's-born millennials.

In the 2000's was when we met, those who had grown up there and those who were
moving were in the same age group. Only about 40% were college educated or in
tech/programming oriented roles. Of those, a small amount has ridden the wave
to prosperity. Most moved to Seattle (if looking for a career/home/etc), or
Portland (if they pass the weird-test). There's been a steady trickle out of
the Bay for anyone not in tech for the past decade, and now I think only 10%
of them still remain. Now they're going to Colorado rather than Seattle, and a
few more to Portland. Those that are currently missing the wave in Seattle are
looking at moving to Colorado.

I have no idea which area is gonna be next - Colorado is now seen as the last
"cool" place thats "affordable" and liberal (sorry screaming Coloradan's,
you're next).

Personally, I just can't believe its gone on this long - the pressure release
valve that I thought would be released from the bay every year for the last
decade hasn't fully let go. Career or being able to afford a house seem to be
mutually exclusive ideas if you're not in programming. This is creating a
rather nomadic culture within my friend groups... welp, this area is too
expensive, might as well move onto the next. Very few are putting down roots.

I wonder what this all will look like when we look back 20 years hence - was
it really a bubble, or the creation of a permanent Elysium style class divide
between those that had the capital (or took the risks) early, and those who
didn't start out as well (or were conservative in leveraging themselves)?
Every day it feels like I'm leading more towards the latter.

~~~
poof131
It’s both. There clearly is a bubble. The Fed has essentially dumped easy
money into the economy since the dotcom bust. 2008 saw another crash and again
the spigots were opened. It only seemed to flow to certain areas though as top
down economic policy tends to do. Now as the Fed raises rates, people can
borrow less and thereby afford less. We may see zero percent interest rates
forever and the government stepping in to prop up asset prices like Japan, but
who knows for sure. [1, 2]

But California also has a unique factor, proposition 13. [3] This drastically
disincentives people from moving. Palo Alto has the lowest property tax rates
in the state.[4] Why move when you will pay significantly more monthly. This
is especially pertinent to retirees. So no one moves which destroys market
liquidity. Combine this with NIMBYism, an over abundance of protected lands,
rent control, affordable housing measures and piss poor public transportation,
and you get the shit storm that is the Bay Area housing market. Tech is simply
a convenient excuse. There’s a reason California is building a bullet train
between SF and LA, but no public transportation from the east bay to the
peninsula which would help an enormous number of workers and the environment.
Despite lofty rhetoric, people vote their self interests.

[1] [https://www.wsj.com/articles/bank-of-japans-50-billion-
quest...](https://www.wsj.com/articles/bank-of-japans-50-billion-question-
when-to-stop-buying-stocks-1515973533) [2]
[https://www.zerohedge.com/news/2017-09-11/wtf-chart-day-
boj-...](https://www.zerohedge.com/news/2017-09-11/wtf-chart-day-boj-now-
owns-75-japanese-etfs) [3]
[https://medium.com/@michaellevinson_64108/landlords-and-
heir...](https://medium.com/@michaellevinson_64108/landlords-and-heirs-why-
prop-13-isnt-just-unfair-it-s-un-american-20a8597cb37b) [4]
[https://www.mercurynews.com/2016/12/01/high-priced-
californi...](https://www.mercurynews.com/2016/12/01/high-priced-california-
coastal-homes-have-lower-tax-rates-than-inland-houses/)

~~~
taurath
Prop 13 doesn't exist in Seattle, yet prices are rising as fast or faster than
the bay (on a percentage basis). There the lesson is supply/demand - there is
only 1 month or less of housing stock available, when 6 would be a
historically median market. Everyone is going crazy to buy something as fast
as possible before they get left behind.

Absolutely though Prop 13 hurts liquidity in California though. There's a lot
of factors, nobody can agree on them, so we're stuck with this massively
overheated market.

~~~
nwah1
Yep, Prop 13 is flagrantly unfair, but the general mechanisms by which land
value rises is intrinsic to our system of land tenure.

However, these windfall gains can be recycled into public coffers via the tax
system and lighten tax burdens on productive activity.

As a nice bonus, it would make it much harder to be an idle landlord in a
prime area... the physical equivalent of a patent troll.

~~~
Treblemaker
> Prop 13 is flagrantly unfair

How do you define "fairness" in this context?

* Edited to less confrontational question.

~~~
nwah1
It privileges long time titleholders over newcomers, in addition to the basic
problem of land speculation being exacerbated, allowing random titleholders to
capture even more of the gains of surrounding economic development that they,
in their role as titleholder, played no necessary role in.

In fact, by effectively being a tollbooth operator upon the prerequisites for
economic development they are an active hindrance. Land titles are necessary,
but it is not necessary that they keep the land rent, only the improvement
values that they are responsible for.

------
tomrod
Yeah... that's not going to be sustainable.

I know folks like to point at the big techcos in the area being flush with
cash as evidence this can continue a long time. And in a vacuum, wage growth
in tech could continue to keep pace, perhaps. But that is 300k in appreciation
a year.

How far out will school teachers, janitors, chefs, mechanics, city employees,
and similar need to live before their not-quite-as-quickly-increasing salaries
fail to keep up, and they leave the area en masse?

Cut the NIMBYism and you _might_ see some improvement, but only as fast as the
city can approve permits.

As Buffett likes to point out: be "fearful when others are greedy and greedy
when others are fearful".

~~~
deepsun
Won't school teachers' salaries grow in presence of diminishing supply and
stable demand?

~~~
nradov
Proposition 13 imposes a fairly hard upper limit on the growth of teachers'
salaries.

~~~
jiveturkey
Not at all.

Prop 13 only has effect when houses do NOT sell. Whenever a property changes
hands, which is the only event that matters wrt demand, it is assessed at
current market value.

Prop 13 does have an effect but only in the manner in which it supresses
sales.

~~~
klipt
It limits property tax to 1% which I believe is pretty low compared to other
coastal states. Coincidentally, California's public schools have fallen down
the rankings since it passed.

~~~
thaumasiotes
> Coincidentally, California's public schools have fallen down the rankings
> since it passed.

Last we checked, per-student spending in public schools was _negatively_
correlated with student achievement, so the hypothesis that funding levels are
unrelated to performance would appear to be on pretty strong ground.

------
nradov
Peter Thiel claims that the majority of capital poured into Silicon Valley
startups ends up flowing to landlords.

[https://www.sfgate.com/expensive-san-
francisco/article/peter...](https://www.sfgate.com/expensive-san-
francisco/article/peter-thiel-silicon-valley-capital-landlords-12759450.php)

~~~
Reedx
Yep.

VC -> Startup -> Employee -> Landlord.

Everyone blames tech workers, but they're not the ones raising the prices.
Most of their money disappears into rent.

~~~
counterpoint1
Landlord -> Property taxes -> Government benefits receivers, service providers
and employees

The real beneficiaries are the people who gain from the increased tax revenue.

~~~
talmand
What happens when the source of the tax revenue decides they had enough and
leave?

------
ninkendo
Lived in a rental house in SJ for 7 years now watching prices go up and
deciding to sit it out, after having lost 30% on my house in the midwest years
ago.

I’m kicking myself for not buying earlier, but not a chance you’d get me to
buy in now. We’re in a bubble that’s ready to burst IMO.

~~~
AceJohnny2
> _We’re in a bubble that’s ready to burst IMO._

Not necessarily. Bubbles are based on speculation. The last bubble was powered
by sub-prime mortgages, which is what burst.

The Bay Area has the problem of ongoing immigration, a very highly paid
demographic, and housing market that isn't keeping up. Simply, Offer < Demand.

Offer isn't looking to catch up any time soon [1], and demand crashing would
mean the tech economy will have crashed as well (or, you know, The Big One).

[1] I'll have to sleuth up the link from 6mo-1y ago about how maximizing
consctruction at this point would only _keep up_ with demand, effectively only
preventing a further increase.

~~~
usaar333
Rents are flat the last three years. Values are up by over 30%. That
difference feels speculative..

~~~
refurb
Looking at the Case-Shiller index for SF, I would agree it looks
speculative.[1]

SF home prices went from an indexed 219 in Mar 2006, down to 120 in May 2009.
That's a 45% decrease over two years.

Right now the index is at 259 and that's inflation adjusted.

[1][https://alfred.stlouisfed.org/series?seid=SFXRSA](https://alfred.stlouisfed.org/series?seid=SFXRSA)

~~~
nshelly
I believe the Case-Shiller index is "seasonally-adjusted", not "inflation-
adjusted"[1]. What makes you think it's adjusted for inflation?

[1]
[https://www.advisorperspectives.com/dshort/updates/2018/03/2...](https://www.advisorperspectives.com/dshort/updates/2018/03/27/home-
price-surge-continues-in-january)

------
pascalxus
They really undersold it. 800$ per day is what it earns in appreciation, but
it earns even more when you rent it out.

If you have a house on the penninsula, I'd say it's time to cash out and move
to the midwest and retire. ;)

~~~
tehlike
Dont forget tax benefits.

~~~
toast0
You can pretty much forget about tax benefits, thanks to the 2017 federal tax
plan that limits deductability of state and local taxes and reduces the cap on
mortgage interest deductability. You may still get a deduction, but it's not
going to be that much higher than the standard deduction.

~~~
sokoloff
For landlords, those new limits do not apply; they remain deductible, just
like other qualified business expenses (which makes sense IMO, which is why I
support the mortgage interest deduction, to keep owner occupants on relatively
equal footing with landlords when contemplating purchasing property).

~~~
tehlike
The real q is, why does government even subsidizing home ownership in the
first place?

~~~
youpassbutter
>The real q is, why does government even subsidizing home ownership in the
first place?

Firstly, older people own homes and they vote. Secondly, homes are a
significant part of people's retirement assets. As companies do away with
pensions and as the Social Security age gets increased, home values gain in
importance. So the government has an incentive to keep home prices high.

This hurts the younger generation looking to buy homes and raise a family. But
the older generation votes in greater numbers than the younger people.

If you are politician running for office, you aren't going to say "lets raise
property taxes" or "lets get housing prices down so that young people can
afford it".

~~~
tehlike
It also causes nimby. You own a house you vote in your best interest and
oppose new housing.

Prop 13 is one big reasons, too.

------
blondie9x
We need to build much more dense places that people can actually own.

The housing situation is not sustainable. Many people end up living on the
streets because affordable housing isn't available. There is too much demand
and we aren't building dense enough to utilize the land available.

~~~
0x445442
There's plenty of land in this country. I see no compelling reason why Google
can't open up more offices in the fly over states.

I'm guessing, if offered the same salaries, Google could find plenty of
willing takers to move.

~~~
Bartweiss
> _I 'm guessing, if offered the same salaries, Google could find plenty of
> willing takers to move._

There ought to be companies with data on this - some places allow fully-remote
work without adjusting salaries for CoL. So I wonder: how many of their
employees still end up living in high-cost cities?

Does anyone know of public data that could sort this out?

------
11thEarlOfMar
Looks like it's all about inventory. No one is selling their home in Santa
Clara County (San Jose)[0]:

Homes for sale in March 2016: 1,254

Homes for sale in March 2017: 934

Homes for sale in March 2018: 516

[0]
[http://scc.rereport.com/market_reports](http://scc.rereport.com/market_reports)

~~~
jandrese
Why sell when your home value is increasing by $292,000 a year and property
taxes are not going up? This seems like a very strong HODL time for real
estate as an investment. The fundamentals are sound, there are tons of people
looking for a roof over their head so they can continue working their dream
job and supply constraints that prevent the production of new homes to
accommodate them.

------
kevinburke
Please contact your Senator and Assemblymember and ask them to vote yes on SB
827 and 828, which would make it much easier to build housing in transit rich
areas that have previously resisted it - Atherton, West Portal, Palo Alto,
Forest Hill, all of Marin County come to mind.

------
BurningFrog
If you want to do something about it:
[https://yimbyaction.org/](https://yimbyaction.org/)

------
wyclif
And they're ugly townhouses too, the type that have been slapped up quickly,
McMansion style. The Spanish roof tile thing will never die, even when it's
applied to a townhouse.

~~~
abritinthebay
That's pretty much most of the south bay in a nutshell tho.

------
d--b
There is a double bubble there:

1\. low interest rates have been pushing people to buy houses for a decade.

2\. and cheap borrowing costs pushed investors into riskier businesses like
startups increasing the flow of capital in that region.

Add the NIMBY mentality, and you get skyrocketing prices.

My guess is that raising interest rates are going to change all this
drastically before year end.

~~~
pascalxus
I think it's because Google just set up shop in San Jose and started hiring
like crazy.

I wonder, in san jose, How long will it take until families start living in
garages like in Palo alto?

------
thatfrenchguy
And San Jose really is a really really boring suburb...

~~~
duxup
As someone who worked outside CA and ended up working for a company based in
San Jose I was all pumped to visit the corporate HQ for the first time,
silicon valley here I come. The offices were very nice, saw lots of signs for
super cool companies that I knew. It was great .... except it was all just a
lot of office park... and nothing else.

I'd take the train up to SF on weekends for things to do. Otherwise I was more
entertained back home around Minneapolis than most places outside SF.

------
georgeburdell
>Home price appreciation serving ‘as a kind of second job’

I had this thought the other day, actually, when tallying my net worth for the
quarter. My home went up by ~$100k in value since December (hot neighborhood
near Apple) and my family earned about the same amount in income. Long term,
we plan on cashing out and moving to the East Coast so it's not just idle
numbers tabulating.

~~~
ikeyany
Won't that defeat the purpose of why you chose to buy and live long term on
the west coast to begin with?

------
yAnonymous
To everyone hoping to wait out the bubble: We have this in Germany and it's
been going on for 9 years now. I hope you enjoy waiting.

------
__m
if we only had some kind of network that would let us work remotely from
anywhere in the world, but i'm just dreaming

------
pontifier
Autonomous RVs are going to pop this bubble. You're going to see a lot of
people dropping static homes for RV's, or even a couple of them.

You'll see a new generation of people who have never had a static home, but
always been at home wherever they are, and they'll never be more than a few
steps from their own bed.

------
doseofreality
Queue up some saying about trees, sky, growth, etc.

------
rayiner
ITT: rent-seeking.

------
abritinthebay
Sounds about right. Similar around the Bay in general tbh. My wife and I
bought a place in Oakland in December and it's already up _20%_.

That's _insane_.

~~~
tehlike
Something did happen in january.

~~~
selimthegrim
What was that, for us non-Bay Area dwellers?

~~~
abritinthebay
Seems like he’s talking about standard seasonal variations (December is the
worst month to sell in)

However the difference is crazy even _accounting_ for that

~~~
tehlike
No, i lowballed at 15%. Some places saw 30% which is not attributable to that.
I thought it was the tax laws, but still not clear what it is to date.

~~~
abritinthebay
The supply has been almost nonexistent since September. Literally a handful of
properties for sale.

Suddenly people started listing - so there’s a LOT of pent up demand.

------
shard972
I wonder what affect San Jose being a sanctuary city has on these increases.

It would seem me that a policy that encourages illegal immigrants to live in
your city is neccisarily going to increase the supply of home dwellers,
putting more demand on housing.

