
I simulated California housing and learned about simulators - yorwba
https://apenwarr.ca/log/?m=201809#18
======
jpollock
When I bought, I noticed that every 10mins closer (rush hour driving) to
Google was worth US$100k, and every point on the school rating was worth
another US$100k. This led to an interesting gradient between downtown San Jose
(bad schools) and Mountain View (good schools/close to Google).

The same thing applied to Cupertino/Apple, with Willow Glen having better
schools but a longer commute.

We drew a circle on the map showing the longest distance I was willing to
commute (on a bike), and bought on the circle.

~~~
chroem-
Malicious startup idea: a company whose business model is driving rent-seeking
real estate speculators into financial ruin. The company would buy residential
real estate in a low cost of living area, followed by setting up offices there
and paying its employees a high salary to do absolutely nothing. When rent-
seekers inevitably drive up housing prices to as high as wages will tolerate,
the company sells its real estate holdings in that location and moves
somewhere else.

~~~
sytelus
Non-malicious startup idea: What if you bought houses in bad school area,
created a great private/charter school in that area and sold your houses at
much higher price? From OP's calculation, a great school may cause at least
$200K price increase per house and depending on capacity of the school you
need to build, I think this can turn out to be pretty good business.

~~~
xyzzyz
> What if you bought houses in bad school area, created a great
> private/charter school in that area and sold your houses at much higher
> price?

It's not easy to create a good school. Certainly, simply throwing money at the
problem doesn't work, as shown by an example of US public schools. The most
certain way to achieve it is to heavily preselect the attending children, but
that presupposes the existence of such quality base in the area around the
school. The problem is that if it does, then their parents are usually already
rich themselves, and so the house prices are already high.

~~~
yesenadam
Are these assumptions, that throwing money at the problem characterizes US
public school, and that quality children usually have rich parents, anything
like justified?

~~~
efnx
They must be. Public schools are underfunded. Also, who measures children by
“quality”? Jeez. This part of SV culture I would like to unsubscribe from.

~~~
dnautics
Public schools are not underfunded. The inflation adjusted per student k12
spend in the us has gone up over the last 30 years.

It seems like school teachers are dramatically underpaid (a matter of opinion
but I feel it's probably true in the median), but not the system as a whole.

~~~
forgotmysn
it really varies, its not fair to say that all schools are well or poorly
funded. in california, it is dependent on local taxes for example. so palo
alto has incredible schools, and LA and Oakland have some of the worst in the
country

~~~
xyzzyz
Palo Alto spends only 10% more than Oakland per student, which itself spends
more than both national and state average. If Oakland schools are worst in the
country, the funding has minor, if any, impact on it.

~~~
ultrasounder
The difference is "PiE" Partners in education, which is a non-profit voluntary
parent-led organization which supports "All" the extracurricular activities
plus for in-class aides for all classes.

------
dahdum
Author has a great grasp of the market, and this simulation is pretty cool.

Another way to look at it is the house-price-to-income ratio, San Jose metro
is the highest in the nation for individuals, #2 for households. [1]

Even better IMHO is price-to-rent ratio, which is the rental price of a home
compared to the purchase ($360k home rented at $36k/yr is 10x). SV runs from
35x in SJ to 45x in SF (highest in the nation). Home values can't rise much
above this unless income rises. [2]

1\. [https://www.citylab.com/equity/2018/05/where-the-house-
price...](https://www.citylab.com/equity/2018/05/where-the-house-price-to-
income-ratio-is-most-out-of-whack/561404/)

2\. [https://smartasset.com/mortgage/price-to-rent-ratio-in-us-
ci...](https://smartasset.com/mortgage/price-to-rent-ratio-in-us-cities)

~~~
snarfybarfy
A Price-to-Rent ratio of 45 is indeed crazy. Implied total return only
slightly above 2% with quite some downside risks AND running costs +
depreciation.

Rents are also quite high and it would still take 45+ years to have it paid
off!

Any reasonable person would want to rent in such a situation.

~~~
a008t
There are two options here:

1\. People value owning a home irrationally, the price is disconnected from
fundamentals

2\. People are pricing in future growth. With interest rates being low, this
growth can be fairly long-term. The growth is primarily in future rent
increases, but also potential interest rate decreases or irrational future
growth (as in point 1).

Now, for point 2, we can actually calculate implied future growth, and then
try to decide whether it is rational or not - e.g. given the market future
interest rate expectations.

It would also be interesting to know who owns these houses. Did they buy them
by really stretching themselves, and any downturn in the area would result in
loads of forced sells, temporarily collapsing the market? Or are the owners in
no danger of having to sell?

------
michaelbuckbee
A ton of good and interesting bits in here, but the real payoff I'm pasting
below as I fear others might not make it to the end of the article:
_________________________________

In turn, what this means is that the NIMBYs are not all crazy. If you try to
improve your home, the neighbourhood, or the region, you will not improve the
property values, so don't waste your money (or municipal funds); the property
values are already at maximum. But if you build more housing, you run the risk
of putting DSR below 1.0 and sending property values into free fall, as they
return to "normal" "healthy" market conditions.

~~~
nkurz
This might also be useful knowledge to the currently non-voting renters who
one day hope to enter the market. It's about half-and-half own vs rent for the
Bay Area as a whole, but SF and Oakland are majority renter. Vote now to
increase housing stock, and you might soon be able to buy in at a reasonable
price!

~~~
burlesona
For some definitions of “soon” :)

------
cryptozeus
Great article, this you articulate perfectly what has been on my mind lately
“It means raising engineer salary to match the higher cost of living ("cost of
living adjustment") is pointless: it translates directly to higher housing
prices (X goes up for everyone, so R*X goes up proportionally), which eats the
benefit.”

~~~
sharkmerry
Slightly off topic, but this has been my fear with the push for UBI, it feels
like rents/costs will just go up as they did with gov't backed student loans..

~~~
jonnycomputer
Except that UBI is/was supported by realllly savvy economists. Like Milton
Friedman.

A similar argument could be made about public spending on education, that it
only creates inflation. But of course education is a great way to increase
productivity. Similar effects would probably follow from universal healthcare
and a UBI: namely healthy, financially secure people can do things that have
short-term costs but long-term benefits, like starting a new business, or
doing a low-paid internship, learning new skills, and so on. Also, fewer sick-
hours leads directly to increased productivity.

~~~
mifreewil
> A similar argument could be made about public spending on education, that it
> only creates inflation. But of course education is a great way to increase
> productivity

Uh yeah, but that doesn't make it a good thing. If the expense of education
puts you into a debt hole that is so deep that it's impossible to make up for
it with increased productivity, that is a net negative.

And what does this have to do with housing? Increased housing costs is like
the exact opposite of increased productivity. Limiting supply of housing is a
rent-seeking behavior.

~~~
jonnycomputer
Its made it good enough a thing that nearly every nation on earth has made in
a priority.

Seeking to limit supply is not necessarily rent-seeking (which is a
motivational state), but sure.

The comment was directed toward the issue of whether UBI is inflationary, not
whether housing supply should be increased.

------
nabla9
Simulation is nonanalytical way to model complex phenomena and try to
understand dynamics of it. Just like purely analytic mathiness, the main
benefit is that others can point errors and omissions. Peter Norvig does it
too:
[https://github.com/norvig/pytudes/blob/master/ipynb/Economic...](https://github.com/norvig/pytudes/blob/master/ipynb/Economics.ipynb)

What you are simulating is just tiny part of the Economies of agglomeration
[https://en.wikipedia.org/wiki/Economies_of_agglomeration](https://en.wikipedia.org/wiki/Economies_of_agglomeration)

The only working solution to housing is building more densee cities with more
housing. Productivity of workers and companies increases as the result of
various agglomeration effects.

~~~
salty_biscuits
Or to figure out how to get an effective distributed work force...

------
a008t
So does social housing make the situation better or worse?

Looking at London, for example. There are surprisingly few nice areas in
London to live in with a family, in close proximity to the City, _even_ if you
had loads and loads of money. That has always seemed very odd to me. As a
result, the few reasonably nice houses that you do find, have prices that are
"maxed-out" \- that is, if you are in the "high-earning class" \- e.g. working
in finance in London - and buy them, all your "excess earnings" are sucked
into mortgage or rent, and you are left no better off than if you were in a
median job, except now you live in an ok neighbourhood close to work.

If you had no planning laws etc. and it was easy for property developers to
develop how they like, you would think that the area around where the highest
paying jobs are would be more uniformly nice, developed in such a way that the
people working in those jobs would want to settle there. So the supply of
houses for those workers would increase. At the same time, low-income workers
would likely be pushed further out, with some finding that the extra commute
makes working in the city centre not worth it. Thus the wages for the low-
income workers will probably go up as the supply of labour goes down.

It seems like the overall utility would go up - London would become a nicer
place to live in, crime rates would drop, etc.

~~~
rustyboy
Unfortunately for London property has become a massive asset. If you look at
who owns most of the houses you'll see that it is foreign buyers, the wealthy
with multiple houses, and extreme landlordism. This is artificially raising
the price, even though there are plenty of empty lots sitting around, forcing
crowd out without actually creating any better property.

Socialized/affordable housing might help, but typically once the market is so
distorted not many people can afford to live there and thus even if their rent
is cheap they're going to leave. This property is then bought by the wealthy
and traded for an asset, repeating the cycle.

~~~
a008t
But is the price really disconnected from rents on comparable properties?

The way I think about it, is that if buying a house can yield you 2-3% -
either through expected house price growth or through rental income or both -
_someone_ will be buying it at that price, because it makes economic sense in
a low interest rate environment (i.e. you won't find any other assets with
similar risk that will give you a higher yield). Who ends up being the buyer
is not particularly relevant - as long as the yield is there, somebody will be
buying at that price.

The question then is,

1\. Are rents too high? Unlikely, rents are very much supply/demand driven.
2\. Are yields too low than what is justified? Possibly. Rental yields in
central London seem to be around 3.5%, which seems quite low if you take into
account the costs and the risks. 3\. Are investors pricing in too much price
growth? Possibly - related to point 2 above.

But it doesn't seem like current buyers are paying completely irrational
prices for the houses. So it does not seem like we are in a bubble. Of course,
if interest rates go up, we will see housing drop, and as expectations of
future price growth are reduced because of that, we should see a bigger
decrease in house prices than is warranted by interest rate increase alone.
Add to that the potential of some people not being able to pay their mortgage
at higher interest and being forced to sell, and the prices should dip even
more than "intrinsic value". If this effect propagates to the wider economy,
people might lose their jobs, forcing more people to sell, resulting in a
full-blown liquidity event where it becomes a buyers' market for a short
while.

Now, whether interest rates will go up significantly and whether once there
are signs of such a liquidity event they will stay high is anyone's guess.

------
wyldfire
Is the talent pool more valuable there than elsewhere in the US or elsewhere
in the world? Even if you allow for the effect of having drawn talent there
over decades, is it _that much_ more valuable?

If not, it seems like corporations are making a mistake by investing there. If
the government can't be convinced to change the zoning rules, then companies
should take some attrition and expand elsewhere.

~~~
zellyn
There's a certain critical mass to it. We moved out to SF for five years while
I worked at YouTube, then back to Atlanta to be close to family (and afford a
house).

There are two or three awesome places to work in Atlanta. In SF I knew I could
get out of bed, trip over my shoelaces, and accidentally land on six fantastic
places to work before breakfast…

~~~
zellyn
btw, if you're in Atlanta, or interested, you should come have (free) lunch
with us sometime at Square Atlanta.

If you're experienced, and interested in Go+Java infrastructure/tooling work,
hit me up: I'm trying to help get an Atlanta PlatEng (“Platform Engineering”)
presence off the ground and might be hiring soon…

------
microcolonel
I think simulation's scientific utility is misunderstood. A model with honest
parameters and predictive ability can be used to hypothesize effectively about
changes in policy or or the effects of external factors.

~~~
panic
Just call your model "AI" and people will become interested. You're not
p-hacking, you're hand-tuning hyperparameters!

~~~
andrewflnr
> hand-tuning hyperparameters

This is a delightful phrase. I'm going to try to find opportunities to use it.

------
PHGamer
so basically we need to reduce zoning laws and kill the market which has
always been in my mind. No one wants to say it but the truth is a healthy
market means housing isnt worth that much which means its not a good
investment (which it shouldnt be, it should be a place to live)

------
SethTro
I really Identified with 'Is simulation "real science"?'

IMO it's no small wonder that AI look and feel human to us. As a heuristic
we've prematurely discarded all the ones that don't.

------
ericand
I loved the reference to the Zen and the art of Motorcycle Maintenance. Like
you, A colleague of mine saw parallels in the book to data science (He wrote a
series of talks about them. Here's a video with me explaining some of them
[https://youtu.be/iYRtVwqxjzM](https://youtu.be/iYRtVwqxjzM)).

------
ThrustVectoring
Another "solution" \- one that requires no action from homeowners - is to fix
the demand side of things. Engineers without family could park a van nearby
and (optionally) commute in and out over the weekend to a nice area further
out. For the cost difference I'd be willing to put up with a pretty
significant amount of hassle like that.

~~~
lozaning
My manager's manager kinda does this. She flies her airplane back and forth
between Yosemite area and the Palo Alto airport everyday. She loves flying and
the numbers apparently penciled out for her to be able to afford to buy a
house in Yosemite with access to a private landing strip, and buy the plane,
fuel, and maintenance for cheaper than she could buy a house in the bay.

~~~
a008t
How long is the overall commute? That sounds like a potentially interesting
solution.

~~~
lozaning
I think flight time is around 50 minutes. Depending on what time I leave the
office she sometimes gets to her house up there before I get to mine in
Cupertino.

------
torgian
Funny startup idea: buy a bunch of real estate in those areas, then rent out
capsule homes for a hundred bucks a month. Stuff them into these overpriced
homes and take a bunch of cash-strapped renters away from those that are
pushing the rent up.

You’ll lose money on upkeep and taxes probably, but its still a fun idea.

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segmondy
BTW, I'm a bit disappointed that this didn't use pysim.

