1: Its desirable for most people to live here. Possibly the most desirable place in the USA, depending on your tastes. As a result, people are willing to pay more to live here. There are jobs, culture, food, art and much more all in this great city.
2: Rent Control. I wont get too much into it, but my take as a real estate investor is that it greatly entices residents to stay put once they have rented. As a result, there is significantly higher rent (due to less supply) for new residents. Many apartments are not rented at all because of the owners fear of rent control. SF needs to get over its "you have a right to live at your same address forever" attitude.
3: No new housing/construction. SF is a 7x7 plot of land which through both NIMBY-like behavior and heavy legislation/bureaucracy, has pushed a extremely anti-developer agenda. Every year, thousands and thousands of people move to SF. Unfortunately, there is less than 1 new housing unit built for every 25 new residents. The common thread that is thrown around is "We dont want SF to turn into a mini tokyo with skyscrapers and tiny apartments" so instead we have 3 floor victorians being used to house 10 roommates at $1500/pop.
People who are upwardly mobile follow the jobs. In general, they choose jobs, then cities. Except for the very rich who don't have to work, desirability (excluding commute) is a minor factor in prices. I can back that up, but I think most people buy this already.
However, real estate demand is extremely inelastic. If 5 percent of the houses in Manhattan were destroyed, the price increase wouldn't be 5%. It would probably be 2-5x, possibly 10x. That's why, even though rent control only affects a small percentage of the market, its price influence is huge.
New development is supposed to correct for that, but often the result of it is creation of more expensive housing, which solves quality problems but doesn't have the desired price effect until many years later. (Real estate rarely goes down in dollar-denominated amounts, for psychological reasons; what does happen in a soft market is that prices stay flat and lose to inflation. In effect, it's a loss-limit on price declines that is very tight when inflation is low.)
As a consequence of b), the types of housing that are widely allowable are small (0-2BR apts/condos) that families with > 1 child won't live in and large houses. If prices are high enough, sometimes townhouses are allowed. One interesting observation is that the only high density housing being built in most suburbs are senior housing, which are aimed at people ages 55+ and have covenants in place preventing anyone under 18 from living there. Ergo, guaranteed no school children and therefore the cost to serve is more inline with taxes paid.
I would love to buy a 4 or even 5 BR condo because I want to live somewhere dense and I don't care about a yard, but in order to do that I'd have to buy 2+ condos and combine them. Yikes.
EDIT: There are a lot of comments about increasing supply as a way to make housing/apartments cheaper in SF. This is not at all well demonstrated, as in NYC new real estate development as continually raised prices and priced out those who had previously resided in those neighborhoods (if they need to move they can no longer afford the cost of living in said neighborhood, esp. if they lived in a rent stabilized or controlled place).
New real estate development can make things cheaper, but we are seeing cities have population influxes and those cities traditionally are land limited for new construction. Those two factors work together to ensure that properties are renovated or rebuilt at higher cost to a wealth class that can afford it. It should be obvious that this is not sustainable, cities that do not provide a sustainable way to live for all classes will collapse.
Last I checked a 1BR in the Mission is approaching $3K. It would seem like gentrification is happening whether SF likes it or not. In fact it seems like gentrification is accelerated, not slowed or prevented, by this housing policy.
Having lived in SF, and now live in NYC, IMO NYC is dealing with the problem of gentrification far better than SF. The transport infrastructure here means that people can be displaced farther but still maintain economic viability. You may be 3 stops further further on the train line, but you're still getting to work.
Compare with SF where, because of just how insanely horrific the transportation infrastructure is, getting pushed out of SF-proper has a litany of consequences for the middle and lower classes.
The new construction makes no guarantee and a reduction in real estate prices. So long as the demand is very high, prices will continue to rise even with new construction. This is essentially what NYC is going through now, there isn't enough construction that could possibly keep pace with demand and its unlikely that there could be without a collapse in demand.
> Having lived in SF, and now live in NYC, IMO NYC is dealing with the problem of gentrification far better than SF. The transport infrastructure here means that people can be displaced farther but still maintain economic viability. You may be 3 stops further further on the train line, but you're still getting to work.
This is changing as we speak. The outermost parts of Brooklyn are gentrifying, esp. in places that are predominantly black and/or hispanic. Those places are already on the extreme edge of subway mass transit, so once people living there are displaced they will have very little recourse. Queens is also beginning to go through this phase although its still just getting started.
All of this happens while wages remain the same, esp. for low wage or minimum wage workers. These people won't be able to stay as the prices inflate and I'm not eager to see more tenement style apt. crowding due to the cost.
San Francisco can pick one or the other, but it can't opt out of the basic laws of supply and demand. ANY, and I mean ANY attempt at enforcing affordable rent for a particular income group will have unintended consequences that will either result in less properties being rented, or more rental properties instead being sold to the super-affluent as single family residences.
Or, you can just accept reality and build new, denser developments which will, yes, probably price out the poorest.
As a former construction worker who lived in Asheville, North Carolina (a Portland type city which has attracted tons of hipsters and trust-fund assholes who have driven up rents) I know what its like to have to move because my rent got jacked up. Instead of demanding the government allow me to afford a place to live, I accepted reality and moved the fuck on. I've since moved, worked my way up to making a decent salary, and one day (soon) I will move back and buy the house I got booted out of.
The notion that one person has a "right" to rent a place at a given price is in direct conflict with the "right" of another person to rent that same room for a higher price.
Rent control and "fair housing" policies benefit people like the majority of my family members. My family members, for the most part, are excellent at doing what they did the day before, the week before, the year before. If something begins to disrupt their routine, they complain about the disruption rather than changing their routine. They are poor, and this attitude is a big reason why. Rent control/fair housing policies primarily benefit people like my family.
The reason NYC's still got real-estate-price-itis is that demand still outstrips supply even though they do allow new construction. But the mismatch is not as great as the bay area, where from what I hear nothing can be built and everyone wants to live there.
If you want to see matched supply and demand, look at most of the big cities in Texas. Part of that is geographic -- they're in "flatland" as it's called -- and part of it's that Texas tends to be more pro-development. Supply can rise with demand. Lots of people are moving to Texas too, but prices remain relatively sane excluding a few hotspots.
And add to that any actual residential development in SF will have affordable housing mandates regulated into it.
I don't think that there's anything that will really stop gentrification and price rises in San Francisco real estate short of the current tech boom going away. But if you're interested in mitigating it, you want new development. What feeds the short supply of housing is a large number of single-family-detached houses, especially ones that are uninhabitable in their present form, and so reward extremely wealthy all-cash buyers who can afford to pay a premium for a house, tear it down, and build anew (without the aforementioned affordable housing mandates).
Ah, I see, because it is so affordable to live in SF now?
If new construction wasn't going to raise prices, rent control would be a non-issue.
I have my doubts about this. I would be interested to see evidence that you can actually drive prices down by increasing housing supply.
Because when I've been in a position to watch some dramatic housing supply buildouts in a few areas, my observation has been that generally been that the owners price (at least) somewhat above market rates for existing housing -- after all, it's new. Often it's marketed as luxury housing and leased/sold at multiples of the median price.
There's a few places I've observed a decrease in price. It's not where supply is increased, though, it's where demand drops, usually because the economic activity of the region drops off, but sometimes because of conflict/crime or health hazards.
If I'm right, then there are still two options -- build more or don't build more. Each case may have its own merits, but there's not a case that excludes prices going up for SF and the Bay Area.
Short of the current state of economic activity in the area turning out to be an unsustainable bubble or a major disaster, anyway.
Google "suburban poverty". Its so broad I can't even link to a good citation, worth reading through a bunch to understand the scope of the problem.
Decreasing overall rent isn't a good goal, for much the same reasons as deflation isn't good. Rather the goal of building new housing is to control inflation, as rents going up 50% year over year is even worse.
And building new luxury / high-end housing does help with that. New luxury housing reduces the number of wealthier tenants considering older housing, which reduces competition over said housing, reducing the rate of rent increase over existing housing.
That's a policy choice. I lived in Tucson for for years, and nice houses there could be bought for $200,000. Sometimes less. SF has made a choice about not allowing people to live there: http://www.slate.com/articles/business/moneybox/2012/05/face... , and in this respect it's like many other major cities: http://www.theatlantic.com/magazine/archive/2007/11/a-tale-o... . The cost-of-living issue is really a political, regulatory, and legal problem.
There are some people in some places that are trying to solve this problem (Smart Growth Seattle is one that I know: http://www.smartgrowthseattle.org/), but so far those efforts are pretty small.
Dense, desirable, naturally bound cities are always going to be more expensive than endless exurbs. Look at housing prices in Hong Kong if you think that looser zoning is a cure-all for high prices.
San Francisco is about 47 square miles of land area. The densest 47 square miles of Chicago has a population of 1.1 million people and a density of 23,500 people per square mile (versus 825,000 people for San Francisco and density of 17,600 people per square mile). If you look at the subset of Chicago neighborhoods that have the same combined average population density as San Francisco, they have a combined population of about 2.3 million people.
Housing prices are much lower in Chicago than in San Francisco, despite comparable density over comparable areas of the cities. A big part of that is lower demand. Chicago has fewer job opportunities and is stable/shrinking in population while San Francisco is growing. At the same time, supply is also a huge issue. As of last year, there were seven residential skyscrapers under construction in the downtown Chicago neighborhoods: http://www.domu.com/blog/apartment-projects-under-constructi.... These projects are adding thousands of new units to a market that is by all measures growing much more slowly than downtown San Francisco.
Looks like they include a lot of land for whatever reason that's not really "city" - and don't include some that is.
I don't know what the job climate is like there, or life in general, but it seems like a fairly nice place: college town, desert climate, but they also have a ski resort (!) just out of town, because to the north east they have a 3000 meter mountain that juts up out of the plain.
Vancouver seems to have had a successful high-density residential zoning, but I've also heard that it's become very expensive... maybe because the greater Vancouver metro area is big (I don't know how it compares to the norm though).
I love Tucson. I grew up there. It's just a bad place to be a software developer.
- The wealthy
- The homeless (yes, social services and tolerance is much better here than in any other big city in the US)
People caught in the middle who own a house will survive 10 years before quitting. If they don't own a house they have already left.
I'm doing more than $100K and I had to leave the day I started a family (try to find a rent below $6K for something suitable for a couple + 2 children). I think it's sad that the city will progressively become a strange place where the very rich and the bums stare at each other. If you want to have a preview, spend one hour on Market and 7th.
I really shudder to think what 10-20 years will do to a city where the middle class (whatever that word means nowadays) has been completely hollowed out.
In the US, the median household income is $51,404. So, the middle class should probably be centered around that number. Say, $35000 to $75000 or so. I bet your looking at that number and saying "No way! I'm middle class and my household income is $150k!" Well, turns out that basically everyone thinks the same way regardless of what their incomes are.
So it becomes pretty hard to nail down exactly what defines the various classes in the USA. Especially with the cost of living differences across the country.
Take a look at Rich Blocks, Poor Blocks and spend a little time clicking around the map. The zip code I live in has a median household income of $38,646 and the site suggests the middle class income range for the state is $53,264 to $68,300.
Anyway, middle class is a loaded term.
1 - http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/29/c...
2 - http://economix.blogs.nytimes.com/2011/04/27/everyone-is-mid...
3 - http://www.richblockspoorblocks.com/
That is, indeed, most people, which is why further divisions are useful, and so we talk of "lower-middle" and "upper-middle".
You'll end up with the homeless, the super wealthy, and maybe the $70-200k/yr earning singles or (young) couples without kids. Tech seems to mostly hire from that third group.
I guess you mean SF proper.
You can find very nice (but small compared to mid-west) houses in nice areas for less than $3k in the east bay.
An alternative: just pretend society really likes rich people who make things, and start talking about something more interesting than your work.
When I lived in Seattle, and later SF, I loathed to tell someone my job. Firstly because in that city it automatically paints a "has a truckload of cash" target on one's head, regardless of whether or not it's true.
Secondly because the tech folks in the city are blamed for basically all of the city's woes (this is true in both Seattle and SF). It has little to do with how "low status" software work is (because in those places, it's not really).
Now that I'm in NYC I feel much more free about telling people my job. For one thing, the response is generally "oh that's cool, tell me more" instead of "[eyeroll] yet another one", and secondly I'm not the biggest species in the pond anymore. The response to "I'm a software engineer" isn't automatically "you must make a lot of money".
In Seattle/SF your wealth status is high, but your interestingness status is low. Dirt low even.
In NYC your wealth status is middling, but your interestingness status is relatively high. I prefer this setup far, far more.
But I'm also not a sociologist - maybe we're defining status differently.
Aaannd herein lies the second-order problem for many: that they aren't involved in anything interesting outside of work. This is, by the way, also a problem for us that have already acqui-hired Ms. Right.
What's your proposed solution to dating as a low-status male? If it's the above "pretend society likes makers", well, uh, nice plan if you can convince everyone else to pretend it too, but until then, women will still want to know and shun you once you tell them.
You'll note the pointed absence of "I am a poor peon working in the Ruby on Rails salt mines." (And heck, even when I was a Japanese salaryman, I got better results with "I am in charge of administration of X university's admissions exam" rather than "I write unit tests and XML files, please tune out of this conversation.")
Writing this now, I realise that there is an corner case I hadn't covered in this plan. Solving it is left as an exercise to the reader, but I'd suggest something along the lines of "Emacs or vi?"
Should I just quit and start a company selling shit because that'll look better to everyone else?
I do get your point though, and I do wish sometimes I worked on something that wouldn't exist without me.
Why not say something like "I make computers go harder, better, faster, stronger?" Funny, doesn't make you sound like you're apologizing for what you do, and if someone's really interested ("how does that work?") you can follow up with an explanation. I'd try for some metaphors, too, like "Servers/computers are always juggling tasks, and what I do gives them more arms to juggle with."
I know your last question was rhetorical but if you start doing something that makes you unhappy just to find a partner then you will have a partner who loves you when you're unhappy. Not a great idea.
Also, women who aren't fascinated by computer simply do not care enough to bother trying to explain things via metaphor. I have a friend who was asked at a party "What do you do?" He replied "I'm an engineer working on--" and before he finished his sentence, she stood up and walked away. FYI, he's the suavest person I know and is _extremely_ successful with women, usually: he's learned to stop trying to explain or even mention his job at all.
I recommend you don't try giving people advice on approaching women and what to say until you've _tried it_ for a few years, which as a presumably-straight women I doubt you've done.
The weather is better than San Francisco, you can ride your bicycle anywhere, public transit is good, and it's easy to get to SF as well as Silicon Valley (which I do regularly).
There's no need to leave the entire Bay Area just because San Francisco is an overpriced and overcrowded city. I recently came back to the Bay Area after a decade+ in NYC, and my wife and I decided we'd be returning for the East Bay, not SF. For us, it's the best of all possible worlds.
Things were going well until the last year in which his van was robbed outside his house and a few months later, his band was robbed out on the street while filming a video. It's the kind of situation that makes you want to say, "This is why we can't have nice things."
IOW, if you plan to fit in and live low-key, Oakland may be just fine for a long time. However, if you acquire various types of assets or participate in lifestyles above a certain threshold, you are more likely to experience "equalizing events."
edit: This friend moved to Alameda last month.
What's worse is I worry Oakland will experience the same type of growth the Mission did, where half will become overpriced and homogenized while the other half will continue to be neglected.
Unless you are talking about west or east Oakland, in which case its full of blight, gangs and crime.
Don't get me wrong, Oakland is gentrifying despite itself but I would never want to live in Oakland till they fix their failed city government and their high crime rate.
Besides, the longer the commute, the less free time you have, which takes away from your personal projects and massively decreases your chances of innovating or inventing something new.
Yeah, looks safe enough.
Is this what you were talking about?
Many Oaklanders would point out that not all of the city suffers from extreme violent crime, but it would also seem that the areas convenient to a SF commute generally tend to be worse, and the good areas aren't that cheap.
If you're not a thug, all evidence (or at least many anecdotes) suggests that Oakland doesn't want you.
Its always been expensive to live here, it doesn't have much to do with tech, it has more to do with SF being a center for finance AND technology. That said, having a mortgage lower than your rent is true for many people who bought at "the right time" rather than at the peak of demand. Demand is outstripping supply due to the insane people who get elected to the city government, which is largely driven by fresh but naive stream of tech workers and the radicalized longterm residents. The only way to fix this is to oust people who do not support fiscal security and personal freedoms (Leeland Yee is at the top of my list) and replace them with people who eschew cronyism and support a balanced approach (Sean Elsbernd comes to mind).
The so called BART divide is really more about greed and institutionalized mediocracy. Station agents should make minimum wage, the people who make BART actually run are the maintenance staff and the conductors. The conductors shouldn't be people in trains, they should be people in offices as the technology for having fully automated trains has existed for decades. The safety issue is a red herring, as the issue as posed is not for more transit police, but for more lighting. Management is also not blameless as they should be putting less money towards bureaucratic salaries and returning it to the ridership in the form of lower fares and upgrades to cars.
If you feel guilt about living and working in SF, stop it.
Spending money is what keeps the economy of SF moving, and what keeps people who don't work in the tech industry employed.
With regard to the tech scene here, a few things. First, it's a little sleepy, sure -- but it's not groggy, more waking up. I'm sure it will appreciate whatever leadership you can contribute.
Second, as you'll soon be demonstrating, living in Portland and working for a company in SFO should be a pretty good combination. The flight down is frequent, quick, and cheap. I would think that given remote working capabilities now and being able to visit SFO for f2f right now! if needed should make things pretty smooth.
I've seen some warnings in some of the comments about the Portland job scene... I'm sure it's not the bay area, but nowhere is. My experience with finding tech jobs here has been excellent. And now that remote work is more and more viable, it's all the better. This is so personal and depends on so many factors that I don't think you can generalize except at the extremes, but I thought it was worth a word from someone who has had zero (knock on wood) trouble.
I know, some haters may hate on me for pointing out how great Portland is for fear that its preciousness will be peed on. But I'd like to think portland's welcoming arms are more generous than that. At least for the foreseeable future.
Two more things: portlandia (the show) is mostly true, and wait until you arrive to buy a bike :)
See you soon!
The answer, sadly, is a universe where said city has an utterly incompetent government.
Start here: http://en.wikipedia.org/wiki/Gentrification
I actually agree with the comment you replied to.
Severe governmental incompetence in SF has been worse for the city than gentrification.
"When wealthy people move into low-income working-class neighborhoods, the resulting class conflict sometimes involves vandalism and arson targeting the property of the gentrifiers. During the dot-com boom of the late 1990s, the gentrification of San Francisco's predominantly working class Mission District led some long-term neighborhood residents to create what they called the "Mission Yuppie Eradication Project.(image)" This group allegedly destroyed property and called for property destruction as part of a strategy to oppose gentrification. Their activities drew hostile responses from the San Francisco Police Department, real estate interests, and "work-within-the-system" housing activists."
This is not a problem with the wealthy people!
Now you could argue this is still "not good", but there was no real argument made at all, just an implication of "you should read this wikipedia page since it comprehensively responds to your ideas", and it really doesn't.
Basically, i'm trying to understand whether he actually wanted to participate in the discussion and had substantive points, or just thought it was obvious and covered by this wikipedia page.
Some people may find that the environment outpaces their income or lifestyle... okay. Record companies found that technology outpaced their business model. The changes are good regardless what the curmudgeons think.
This change almost always coincides with a displacement of people, esp. existing communities of those with lower incomes or communities inhabited mostly by people of color. What exactly is cool about the destruction of a standing community that is caused by issues of systemic class and racial inequalities?
Ironically, things like wage controls, rent controls, and welfare have locked these very people into a cycle of poverty out of which they have trouble escaping. Continuing communities that are perpetually in blight is not the an obvious good. Allowing the system to change naturally with healthy commerce would seem to be an improvement.
One would hope that government masterminds who were responsible for creating the blighted areas in the first place would just get out of the way and allow the system to heal itself through growth and change.
Uh what? Things like rent control and welfare allow people to have shelter and eat when they otherwise wouldn't be able to. Systemic poverty occurs not because there is a welfare program, but rather because of classism, racism, and capitalism. That's not hyperbole, this is well understood in logical argument and through real world evidence.
> Continuing communities that are perpetually in blight is not the an obvious good. Allowing the system to change naturally with healthy commerce would seem to be an improvement.
Except that said development skews heavily towards white people and heavily disfavors black and hispanic people. This doesn't address livability for people and communities, this kind of attitude is a direct endorsement of systemic racism and classism.
rather because of classism, racism, and capitalism
Yeah, we completely and totally disagree. Racism is obviously wrong, but you'd have to show why other minority groups (korean, japanese, chinese) don't have the same poverty rates as blacks and hispanics before attributing poverty to racism.
Capitalism has been the greatest economic system for humanity to break out of poverty in history. Feel free to point me to another economic system that has worked better at taking a diverse melting pot like the USA and allowing anyone to achieve the highest economic and political levels in society -- hand-waving theoretical economic systems are not admissible as evidence.
Classism tends to happen when layers of a society calcify because the framework reduces mobility. Free market capitalism allows people to start businesses and achieve the ultimate in economic mobility, shattering the classes.
Apart from all that, welfare and assistance is taken by force from others in society. I'm okay with caring for those who are truly unable to work, but most of the dollars going to such programs today go to fraud or other unnecessary use of that money.
this kind of attitude is a direct endorsement of systemic racism and classism
As usual, your political persuasion tries to throw out the race card. That tactic offends me mostly because the irony is that your political philosophy causes more stifling economic stagnation than any other. That stagnation is the cause of distinguishable classes and just reinforces economic distinctions between races that reinforces racial stereotypes, encouraging racism.
NYC is often considered more expensive, and Manhattan is certainly... well... Manhattan. But taken collectively the NYC metro area is actually much more affordable. You can find places to live that are nice, friendly to someone older than 25-30, and at least sanely priced. They might not be in the closest or most fashionable neighborhoods, but they'll be reachable by NYC's excellent transit system.
In SF you have nowhere good to go unless you want an absurd commute, and its transit is horrible compared to NYC. So you're either rich or you're in a crummy apartment or with roommates. That doesn't work for people who aren't kids in their 20s.
My suspicion is that it's part policy choice -- a lot of protectionism from existing property owners who want to keep riding the property bubble and a lot of NIMBYism -- and part irresponsibility on the part of homebuyers. I suspect that many homebuyers in SF are doing the irresponsible thing of squeezing into a home by spending upwards of 40%, even 50+% of their income on mortgage payments instead of the usually fiscally responsible number of ~30%. And this is punishing everyone and sucking the soul from the city.
In the long term, Silicon Valley and SF is eating its young. It's a city built on young entrepreneurs coming there and doing new stuff, but if nobody who hasn't already made it can afford to live there what happens then? The other problem is that these high costs soak up everyone's spare time and money, leaving them with the requirement to work like crazy for other people to afford to live instead of on their own innovative projects. It sucks away the marginal "play time" when innovation really happens.
If this isn't remedied, SF/SV will become an echo chamber of already-made-its and already-know-it-alls. Then it will stagnate and be left behind.
Edit: real estate hyperinflation in general is a social ill that deserves to be tackled directly as such. It seems as if real estate has mutated into this hungry sponge that sucks up all surplus economic vitality from any region that experiences success. Imagine what all that money in SV could be doing if it weren't all sucked up by real estate.
It's like beyond a certain point, people no longer get wealthier. Their houses do. The home -- the "American dream" -- has become a tool of indentured servitude and bank fiefdom.
I've never understood this crazy, if not outright insane obsession with home ownership. Why does everyone want to tie significant amounts of their lifetime earnings into physical property that historically has had very low appreciation in value? It's like people have forgotten about the housing bubble popping just five years ago, causing large portions of the population to take big hits financially. (And what is the current real estate craziness in SF, if not another bubble that will inevitably pop?)
Even seemingly rational reasons for home ownership, such as being able to raise a family in good school districts, fail to stand up to critical scrutiny. There are many stable renter neighborhoods with great schools.
And, I don't understand why so many people on HN seem to think it's insane. I'd like to be more in control of my environment. I don't want to be at the whims of a landlord, particularly in the future, when I have children.
I want a place that is mine to customize as I see fit. I don't want to have to ask if I can paint, I want to be able to pick my own appliances, I want to be able to tear down walls if I want.
Some people are homebodies, and some are not. I don't understand why people get so worked up and insist that their personal tastes are correct. To me, renting is insane. To you, owning is insane. Let's just agree to disagree.
If you live in SF, you have easy access to all sorts of great things, but the downside is that unless you are fabulously wealthy, you are most likely renting an old and not necessarily well-maintained apartment with one (or two or three or more...) roommates, in a neighborhood with a disturbing number of homeless people and/or occasional violent crime, and you have to take the bus (or ride a bike) everywhere you go because it's just too much of an expensive hassle to drive anywhere. I'm not describing the living standards for college students or blue collar people, these are living standards for people who are probably in the top 5% income bracket in the entire country.
Those same people will tell you stuff like, why would you want to own a home? Why would you want to live by yourself? What do you have against homeless people? Why would you want a car in the first place? What's wrong with you, you barbarian!
There's something to be said for those perspectives, and I appreciate the value of living in a really dense and culturally rich city with great public transportation. But so many of the SF residents that I know go way beyond looking on the bright side, to the point of fetishizing the very things that can make SF an unpleasant place to live.
Maybe if I lived there I'd be like that too. It's natural to always want to look on the bright side of whatever your living situation is, it's just annoying when people get super militant about it, to the point of accusing you of being a bad or stupid person if you don't want to live there too.
Regarding the old houses, roommates, and homelessness, by themselves none of these are really that big of a deal, and are probably pretty common in any major city. What is a little absurd (and you sort of alluded to this), is that we are paying some of the highest rent in the country, for these 'privileges'. However, I imagine most people who live here, including myself, don't exactly look at it that way. Instead, we look at it as we are paying high rent, for the privilege of living in SF and all it's perks (good jobs, active social life, etc..), and the old houses, roommates and homelessness are just a part of SF life.
I always ride the public transport when I go to SF, it's a great convenience and much less of a pain than driving up there and around there. I wasn't saying that public transport in SF is a bad thing (quite the opposite), but rather that it's often the only choice.
Like, even when it would be way, way more convenient for any number of reasons to just drive to wherever it is that you're going, various factors (parking, traffic, whatever) make it just too much of a pain. Even just owning a car when living in the city can be too expensive and more trouble than it's worth. I do see this as a downside to living up there (or just visiting), even though I would still ride the public transport most of the time anyway.
I know lots of people that live in SF and don't have a car (or in some cases even a valid driver's license), and they will swear up and down that having a car is totally pointless and why would anybody ever do that and what the hell is wrong with you anyway, do you enjoy filling up your tank with evil every week? :) But they spend 100% of their free time wandering around SF. It's not as feasible for them to go on day trips or weekend trips up and down the coast, or get out in the wilderness (at least, out beyond the reach of the bus system), so they just don't. They just hang around SF all the time, which is a rather wonderful place to be stuck in, but they are stuck there nonetheless. I love going on long drives and exploring all the remote corners of the Bay Area and beyond, and I couldn't imagine life any other way.
Ha! It seems that statement is based on... nothing?
I'm pretty militant anti-home ownership. This is partly to combat the omnipresent, uniquely American, societally-negative idea that you really ought to dream of owning a home some day. It's also some sour grapes because of the insane tax treatment home owners get and the difficulty in renting good houses because of it. How is it in the government's interest to encourage that behavior?
I live in a cozy little apartment in Boston and don't really expect to own a home for a long time, if ever.
From a theoretical perspective you should expect home ownership to be about as economically beneficial as renting. There's No Such Thing As A Free Lunch and it drives me crazy that people think lottery tickets pay off, multi-level marketing schemes are a good idea, and buying things "on sale" saves you money.
The only reason home ownership appears to be a better idea, is because people ALWAYS fail to look at it in the risk-adjusted sense.
There's very little special about real estate as an asset class over any other investment vehicle. And buying ANYTHING on so much debt that you're levered up 10x is insane. That implies a 10% depreciation wipes out ALL of your investment.
I have a degree in Economics from MIT and worked in finance for 2.5 years so I tend to see things in that light. But no one talks about home ownership that (correct) way, and it frustrates me that there's so much pressure on people with little financial knowledge to make this massive un-diversified bet without understanding of the implications.
If someone gave advice to an unsophisticated median american to go out and buy tons of stock options, or short sell stock on margin, they'd be rightly chastized. It's unethical. But no one seems to bat an eye when the exact same advice is given regarding real estate.
And that's why the real estate crash was such a disaster trapping so many people in crushing debt.
If America had a sane perspective, wealthy investors who can afford big bets on real estate while still being diversified would take the huge risk in buying a several hundred thousand dollar asset, and middle income earners would have a much easier time renting decent homes in good areas.
So, no, it's not about "fetishizing" homelessness or anything inane like that; it's about recognizing a terrible corrupting influence in America and doing our best to correct it.
But, what if I really want to own a home? I'm a homebody. I want a place to call my own, and I want to make it comfortable for me. I enjoy entertaining guests, cooking for them, and making everybody comfortable -- when I move back to Boston, I'll invite you over. :)
> The only reason home ownership appears to be a better idea, is because people ALWAYS fail to look at it in the risk-adjusted sense.
It's not strictly an investment. What if I derive pleasure and comfort from living in a place that I can customize as I see fit? Every time I rent an apartment, there are things that I hate and drive me crazy: carpet, electric range, no outdoor space, awkward floor plan, etc.
> If someone gave advice to an unsophisticated median american to go out and buy tons of stock options, or short sell stock on margin, they'd be rightly chastized. It's unethical.
Agreed. I'm a fellow MIT alum who graduated in 2005. I know what I'm doing -- and what I want to do is own a home... and in the Boston area, to boot. I wouldn't advocate pushing the "dream" on other people, but I know what I'm doing; why chastise me?
You say that your "militant anti-home ownership" view is "partly to combat the omnipresent, uniquely American, societally-negative idea that you really ought to dream of owning a home some day". Do you find the fact that I want to own one repulsive?
I'll be back in Boston soon. I'll take you out for a beer (or tea, or any alternative beverage, if you don't drink), if you want to talk.
Ha, no no no... it's okay. I would certainly never say it's "repulsive" – at worst "unwise". But as long as it's a considered position, and you have the resources not just to cover your downpayment/mortgage but also to justify such a large stake in a single asset, then it can certainly make sense.
> I'm a homebody. I want a place to call my own, and I want to make it comfortable for me. I enjoy entertaining guests, cooking for them, and making everybody comfortable
Well that's certainly admirable. I would add, though, that part of the problem with finding an apartment that doesn't drive you crazy is most of the nice places are on the market for sale, rather than renting. So the more I can convince people that they'd be happy with renting, the better the rental supply is for me (and them). :-)
I can certainly understand the appeal of owning property for the additional flexibility and control it gives you, and sounds like that's what you're looking for. It's the allure of ownership qua ownership that I'm opposed to. But as you say, if you're not "pushing the "dream" on other people" live and let live.
> I'll be back in Boston soon. I'll take you out for a beer (or tea, or any alternative beverage, if you don't drink), if you want to talk.
I'd really like that! Shoot me an email to connect (my info is in my hackernews info box; I can't see any contact info for you).
I don't live anywhere near SF and I rent because I got a good deal on the monthly payment, I have a great landlord who fixes all issues promptly (which is awesome for me, since I am not much of a fix-it guy) (and relatedly, I'm not that interested in making renovations at this stage), and I don't want an asset that'll tie me down since I'm not sure I want to live in my current living area forever.
People constantly bug me to buy a house, but rent works out fine for us for now. I imagine at some point I will want the freedom to modify my home, but that'll be a little ways down the road, and I'm content "throwing my money away by not building equity" at present, especially since I don't necessarily consider significant real estate appreciation a forgone conclusion, as others mistakenly have (see: 2008) and many mistakenly continue to do.
I live in a duplex in the Bay Area, and I know for a fact that both tenants pay ~65% of the monthly mortgage. The landlord is making a healthy profit every month -- that's the real reason that I have an issue with renting.
That being said, I will not buy in the Bay Area. I'll move back to Boston and buy a condo or house there. Parts of the Bay Area and the Boston area benefit from proximity to universities, and see much less fluctuation in the real estate market. Personally, I miss seasons -- so, I'm not going to spend more money for "better weather".
As a renter, you're going to be dealing with rents rising year over year. Those with fixed mortgages will see the same payments for decades.
If you have kids, you want some more stability, most likely. If the building you rent in is sold, or the rent is raised too much, you have to move. You want to install anything permanent for the kids? Have to ask permission from the landlord.
Not to mention the fact that, if you're paying $1,000/mo for rent, at the end of the year, you have almost nothing to show for your $12,000. In a house/home, you have equity in said house.
And since when did the housing bubble have anything to do with "obsession with home ownership"? I was under the impression it was a combination of unsound investments ("home prices always go up, so it's OK to spend more than you can afford!") and shady mortgage companies dishing out loans with no regard as to whether a person could pay for them.
This is hilarious.
As a home-owner, you have control over your own home, but you have no control over your neighbors or your neighborhood in general. If things go badly, your house depreciates in value and there isn't much you can do to change it. Therefore, when you buy a home you are buying control of your immediate living situation while simultaneously surrendering yourself to the whims of those around you.
If you don't like your stove, you can get a new one. But what if you don't like your neighbors? That's a much bigger problem than not liking your stove, and there isn't a single thing you can do about it. They aren't going away anytime soon, and neither are you.
That's like saying that you shouldn't buy a home simply because it might burn down one day, whereas living in an apartment is fine, because if it does burn down, it's not your building.
Except in a rental setting you can complain to the landlord if your neighbors are noisy, or simply pack up your shit and move if things don't change.
With a house, you're literally rooted in that space for 5-10 years. If you get bad neighbors after making the purchase, you get screwed. If someone decides to build a factory half a mile away, you get screwed. If the nearby school that you purchased the house for degrades in quality, you get screwed. If the HoA decides for some reason (that they don't even need to justify) that they don't like your front yard, guess what: you get screwed. These things cannot be insured against or researched in advance. You simply have to live with them.
Disagree. A lot of neighborhoods have homeowners' associations, which are like New York co-op boards and basically an excuse for non-working house-spouses to get in peoples' way because they have literally nothing else to do.
He's right. Homeownership can be a pain in the ass if you care strongly about the subjective aspects of living in a place. You have an investment that other people can fuck with by building shit near it, and you have people trying to prevent you from changing what you have.
Anyone buying a home knows if the home their looking at has an HOA or is a condo. I know many people who would never consider buying a home covered by an HOA, and many other people who like knowing that their neighbor can't paint their house pink and do car repair in the front yard with death metal playing. Caveat emptor.
Finally, many of these risks are reduced by actually being a part of the community. Don't want a factory built 0.5 miles from your home? Go to the planning meetings, talk to your city planning staff/council members. Join the HOA board. Being a homeowner means that you have an incentive to invest in your community and make it the community you want it to be. If you just disconnect and let others make decisions for you, yes you can be screwed. However, if you participate, get to know your neighbors, and become a part of the community, you can make it everything you want it to be, and more.
I think you're grasping at straws here and it shows. All of the things you listed are incredible time-sucks. If you have ever been to an HOA meeting, you will know exactly what I'm talking about.
And did you just suggest going to city planning meetings to prevent the building of a nearby factory? I'm sorry, but do you even understand how these things work?
There are laws against most of the things neighbors could do to annoy you. Which means you can involve police and/or the courts, until your neighbors stop annoying you.
If you're renting, especially in an apartment complex, and go to sue, that likely means involving the landlord, and thus getting kicked out as soon as the legal retaliation period is up.
See the Steve O documentary "Demise and Rise" about his drug addiction. (https://www.youtube.com/watch?v=fkvVcQr6JU4) See especially this bit (http://youtu.be/vRTrOF6lGzk?t=4m47s)
Want to move to San Francisco to work at a new startup? Oops, you have a house, you're fucked. Breaking a lease is a lot easier than selling/renting your home. Being mobile is a lot better, for job prospects if you aren't in one of the hot spots already.
For one very specific subset of society. For other people with different priorities (friends, family, what-have-you), owning a home might be "a lot better" for them.
Something major happens like the furnace going out mid winter, or a huge roof leak developing, or some other catastrophic event, or heck, even basic maintenance, It's not my problem, and my actual (dirt cheap) renter's insurance will take care of any damage.
$12,000 a year buys a lot of peace of mind. And honestly, unless I'm actually using my house as an investment rather than a place to live, equity is mostly meaningless to me.
Suppose you buy a $300k house with a 15% downpayment. That means you spent $45k to GET the house. Now if the rent payments and the mortgage payment are both about the same, both spend $12k/year to keep their house, but the homeowner gains a very small amount of equity (most of the payment in the early years goes to interest on the mortgage) but the renter has an extra $45k of liquid net worth! If the renter invests in the stock market or a money market fund he gets some ROI from that - income the homeowner can't get. Plus being more solvent is valuable in itself in these hard times.
You forgot "...in other parts of the country." The "great" schools in the Bay Area are pretty much exclusively in places with $1m+ house prices, and with few places to rent for a reasonable amount.
Also consider that the bubble primarily affected the distant 'burbs. House prices in San Francisco, and close in to the city, didn't really drop appreciably at all, and have now regained any losses. So either the "pop" was delayed (and another one is still coming, as you suggest), or there wasn't a "bubble" in SF at all. Not to say that I think it's sane to pay those prices, but I don't live the Bay Area any more for that exact reason.
There are those of us who really want to own a house just so that we can change it however we like. There's something smothering about living in a rental when you've previously been free to do what you want. I know, first world problems, but still, home ownership means that I can't be kicked out (or priced out) on the whim of a landlord.
And leaving the Bay Area is one way to achieve both. I've got better (for some measures of "better") public schools near me now than even exist in California any more, and yet I own my home (and paid only about $320k for it -- still not cheap, but much more reasonable). In my case (having bought and sold at good times in the Bay Area), I own the house outright, so living expenses are even lower than if I were renting, giving me the ability to pursue my own dream projects for more of the time.
That's what I was getting at. SF and SV were built on that, and it's not possible there anymore unless you've got big investors.
If the company in question is betting on very strong growth, then it needs a large pool of experienced talent to draw upon. Paying 3X or 5X as much to get top talent can easily save money in the long run.
If you want to be taken seriously by big fish VCs, you have to be able to speak intelligently about how to spend more for a disproportionately positive payoff. The problem here is not the VCs, but the aspirations of the founders.
Finding less experienced talent for cheap may be the smarter move. For other business models.
In SF, school assignment is by lottery rather than by residence, which drives wealthy people nuts. I get it, if you live in a nice neighborhood across the street from a good school, and the city tells you you have to drive somewhere else, that'll piss you off - and if you can convert a high mortgage payment into access to a public school that the poor don't get in the suburbs, you may very well up and leave. Of course, if you live in a crappy neighborhood across the street from a failing school, you might not mind the lottery so much.
SFUSD is moving to a more district residence model, though it won't be the overwhelming factor.
Not everyone thinks it's a wise choice to spend as much as a used house on a new condo where it's hard to find parking.
Not everyone likes living in a cement jungle.
Not everyone likes to have to turn down the volume of a good movie because or their neighbors.
If you want to buy an all electric car, you think you can plug it in on the street?
There are many reason why owning a home is a good idea. The best option is owning an inexpensive home in a market with reasonable prices and a decent income.
1 - everyone is long housing, and sfbay has had major price swings. Buying a house caps what you'll pay. I lived in a neighborhood in sf where market rents for my apartment went from $2200 to at least $2700/mo in a little over a year and a half.
2 - the US, via mortgage interest deduction, privileges home ownership
3 - california in particular privileges home ownership by basically freezing property taxes
4 - rental stock in california is often complete shit. If you don't want to hear your neighbors walking or running the bathroom fan or etc... you probably need to buy a home.
5 - good luck finding a 3 bedroom rental, which is highly desirable if you have 2 kids
6 - if you have good credit, a $1mm house in the peninsula costs roughly (within $700/mo) what rent does on a similar apartment
7 - want to have a dog? Good luck with that in a rental.
8 - want to not have to ask permission for X, Y, or Z while paying $3500+/mo? Don't live in a rental.
Actual ownership is now impossible for ordinary middle to upper middle class people in markets like the Bay Area, and in fact renting is more rational there. But there are plenty of other markets where it's not impossible.
I've tied a significant amount of my lifetime earnings into dining out and purchasing music and I can assure you that neither of those has much of a resale value, especially the former.
I've never understood this crazy, if not outright insane obsession with maximizing appreciation value. It's like people have forgotten that we make money so that we can spend it making ourselves happy.
I don't have to worry about the rent going up every year / six-months. If I plan to own the house for multiple years, a large chunk of my money goes to equity: I'm banking away value for later that you will get back when you sell the house. (Assuming the market doesn't go pear-shape: a big assumption.) In contrast, money you spend on rent is a pure cost, and irrevocably lost.
There are several "rent vs buy" calculators that can visualize (based on interest rates and rent vs mortgage costs) the crossover point where it's cheaper than it is to rent for X years, and what it does for your net worth. For me, it appears that about 2-3 years of owning will be a break-even point, and less if my rent would have increased.
In my case, the mortgage on a house (3 bedroom) + yard + garage, with a nice kitchen, was about $100 more per month than a cramped, 2 bedroom apartment with a miniscule (and poorly designed) kitchen, no space for the kids to run around, and not enough space to even unpack our stuff.
I OWN IT. Until you've owned one, it's possible you might not fully comprehend this double-edged sword.
I can paint the walls, break the walls, rip up the floor, put in a new mailbox, take out the trees I don't like. There's nearly nothing that keeps me from renting out a bedroom to a friend, or letting the in-laws stay for a week. If I want to mount a swamp cooler outside my window, I can, or turn my garage into an archery range.
There are downsides, too. As an owner, you risk that the market will fall out from under you. It's harder to move, as you have this limbo of not being able to buy a house until you've sold the previous one. (I haven't figured out how to make this not suck. Same goes from transitioning from a lease to ownership.) I have to mow the lawn, make sure the garden is watered. The utilities are a bit more expensive.
Also, as a homeowner, you tend to accumulate More Crap, since you have more space to fill.
All of this is worth it, though, as I do not worry about whether it's OK to paint my kids' rooms, or tear out a ceiling fan that I hate, or stain the deck a different color, or completely redo the landscaping. When someone (me, or the kids) busts a hole in a wall by accident, I think "Dangit, I have to fix that..." rather than "well, there goes my security deposit".
I'm sure that a big part of the appeal of home ownership is that our parents valued it, but I feel like there's a real intrinsic value to it as well. Consider surveying your friends who have owned + also rented, and ask them about the things they like or dislike about it.
This logic is fundamentally flawed. Contrary to the popular conventional wisdom (repeated by our Baby Boomer parents), renting is not "throwing away" money. You are getting something for that payment, which is a place to live.
Conventional wisdom says that with a mortgage, you are building equity instead of paying the money to someone else and that makes more sense financially. But this is not true. You should read this piece to understand why, specifically the Epilogue part: http://messymatters.com/buyrent/
Which isn't to say you should buy a home blindly - you shouldn't do anything so major blindly. It seems to me the appropriate way to view it is: if your cost of owning a home sans payment of principle is less than renting, then you are "throwing away" money but the alternative is investing that piece you're throwing away plus quite probably more in the real estate market, with the corresponding potential upside and risk. In the extreme case where costs including principle are less than rent, then you should probably purchase. An additional thing to watch, though, is that people often under-estimate things like repairs.
All of which is to say, there is no obviously right answer.
It's still not "throwing away money", there are just different things that people value. I value being able to move whenever I want, wherever I want. To me that is worth potentially paying more. The same way some people value being dropped at their exact location with a taxi vs a close location with a bus: just because the bus costs less does not mean you are throwing money away with a taxi.
Where I live, my rent and utilities are higher than the cost of property taxes, HMO fees, utilities AND mortgage payments for an equivalent townhome. My market's the other extreme from Harlem.
Paying less per month for the same thing seems like a good idea. Even if the market drops the value of my house to zero, buying is still the right decision.
Not sure why the market is crazy here. Maybe it's a city of transients, people just passing through, or people with no savings?
This is why rent vs. buy calculators exist, there's no obviously correct answer for every situation, it's highly contingent.
For those of us who want to stay in one place, this is a really good thing. If I want to invest in a workshop in the house, that's a good thing.
My house is mine, and some of the things I have here just aren't available to rent.
That's arguably a feature, not a bug. Rents generally don't skyrocket without cause, and they usually don't skyrocket in isolation. If you're living in an area where rents are increasing rapidly and your income isn't keeping pace with the cost of living (of which rent is typically a substantial component), you probably have very good reason to consider whether you're in the optimal location.
On the other hand, there are people fortunate enough to have purchased a home in an area that has done well since their purchase but who still struggle with an increased cost of living. You see this a lot with people who are on a fixed income, or who bought in an area that has experienced a boom. Yes, these individuals might be able to sell their homes at substantial profit, but they'll still have to move once they sell.
> My house is mine, and some of the things I have here just aren't available to rent.
Your house isn't yours unless and until it's paid off. This may not apply to you specifically, but a lot of people who call themselves homeowners are really homeowners-to-be in about a decade or two or three.
That depends what you mean. It's my understanding (as a non-homeowner of any stripe) that you can do more substantial remodelling projects without asking for your landlord's blessing in a home you have a mortgage on, which seems to have been the kind of thing the parent was talking about, and is a potentially substantial practical difference in whether a space is "mine" or "not mine" whatever the actual equity situation is.
They have to move if they were renting, too, and would be have less money (if they didn't leave the very instant rent rose at all) instead of more. Of course, that's just saying that it's better to be long an asset when its price jumps.
Also, if your work doesn't tie you to a region and you've purchased a house, and rents are high, you can always rent out your house instead of selling it. I know several people who have done this, in one form or another, to generally positive outcome.
That's a couple of big ifs, but even so, unless you have purchased a house as an investment with the intention of renting it out, this is another one of the rationalizations that prospective home buyers use to convince themselves that they're making a smart decision.
As I noted in one of my other comments, many home buyers know very little about the local market they've bought in to. Professional investors and major institutions have purchased hundreds of thousands of homes across the country that they are planning/trying to stabilize and rent out. To my knowledge, Blackstone owns more than 26,000, American Homes 4 Rent owns around 14,000 and Silver Bay Realty Trust owns more than 5,000. These are just a few of the major players. There are countless other smaller players, some of them foreign, doing the same thing on a smaller scale.
It's quite sensible to question the impact this will have on rents in the areas where this activity is most prevalent as the homes are stabilized and rental inventory increases. And one should not ignore the impact these purchases have had on housing prices in these areas.
Net-net: assuming you're comfortable being a landlord, which can be a trying job with even a single property, market conditions and trends vary so significantly that it's simply not credible to state "you can always rent out your house instead of selling it." Heck, as a lot of people found out not too long ago, at times it can be impossible to do either.
But I do have some experience renting places as my family has a few properties they rent and I used to manage a lot of the related work.
Even if you lose a little on the rent, somebody else is now paying for your mortgage and you can enjoy a cheaper apartment elsewhere. Or if you've earned enough, just buy a second house. Mortgages aren't so hard to come by even these days that it's outside the realm of the possible.
In my experience it's rarely worth appealing to logic when discussing home ownership. It's just such an emotional subject that rational debate is often hard to come by.
1. Many home buyers make purchases with relatively little knowledge of their local real estate markets. For instance, in some areas heavily hit by the crash, you can find buyers who don't know that a considerable amount of the local sales activity has been driven by individual speculators and institutional buyers who are attempting to rent out the homes they purchase. They might be on a block where a double-digit percentage of the houses are rentals and not even know it or recognize how this could affect them.
2. Many people don't actually run the numbers for themselves so they can't intelligently weigh the cost of renting versus the total cost of home ownership and the potential gain or loss if/when the house is sold, an event that could be a decade or more away. At best, they do back of the envelope math and where assumptions are required, use a single set of assumptions that is favorable to the decision they have already made.
3. Many people who buy a house are really buying an interest rate and mortgage payment. The recent rise in interest rates has actually provided a good opportunity to observe this: some buyers who are in the market today are willing and eager to purchase a good deal "less house" than they could have purchased even a year ago because they're simply targeting a mortgage payment. Many conversations with realtors are eerily similar to conversations with auto salesmen: the best auto salesmen focus on the monthly payment, not the price of the car and what you're getting for it, because they know that the average person will apply a completely different, and less rigorous, analysis to the purchase when it's done this way.
4. Owning the dwelling you call home is an emotional thing, so home ownership proponents often resort to weak arguments like "if you're renting you're throwing money away" to justify their decision. Of course, there's no shortage of things that people "throw money away" on and some of those people, of course, are homeowners. It's not hard, for instance, to find homeowners with a $400/month auto lease or a 48 or 60 month loan on a car that costs half of what they gross in a year. And plenty of new homeowners spend more on unnecessary upgrades and "stuff" (i.e. large televisions, expensive audio systems, etc.) shortly after they move in to their new houses. Yet many of these same people don't see the irony in bragging about how financially astute they were to purchase a home and start building "equity".
This is probably the most intelligent thing I have read in this thread so far. You are absolutely right. Sometimes I forget that purchases - especially big purchases - are emotional decisions, and people jump through all sorts of crazy mental loops to justify them. I think this "bug" in the human brain is one of the most powerful drivers of the housing market.
They also cite the "myth" that costs go down over time as the principal is paid. In fact the real reason home ownership costs go down over time is that your income is subject to inflation but a fixed-rate mortgage payment is not. Having a fixed-rate mortgage is like getting a 3% cut in your rent every year.
That being said, I completely agree with this article. The most important point is that buying is often worthwhile due to government meddling... it's difficult for other investments to compete with a house ownership appreciation that's tax free.
I think the best lesson from the epilogue is that your mileage may vary. Whether it's financially better to rent or buy depends on the market where you want to live. I had implied this, but not nearly as well. It's critical to take that into account when weighing the additional value you get from owning (namely that you can do what you want TO the property). Sometimes that's worth paying extra for, sometimes it's not, and it's ultimately up to you.
I also liked the commentary about mobility that people made here. It's very true: selling a house and then actually buying one is a dance I still don't understand how to do smoothly.
Interestingly, for about the same amount per month, you can pay off a mortgage, get a nicer place to live and build equity at the same time...and you don't have a super telling you to turn the music down at 3 in the morning.
I currently live near the Twin Cities, Minneapolis-St. Paul, which has one of the costlier rental markets for low end apartments. The cheapest apartments you can rent cost more per month than my mortgage. Annual property taxes where I live are under one percent of the cost of my home. The author of the buy-rent piece makes assumptions that do not apply to my region of the country.
RE is once again all about location. In my area taxes are very low for owner occupied housing (they give a discount to owner occupied and gouge 4-5x the second home/rental properties to make up the difference). Rents in similar areas are very expensive comparatively. Buying makes sense if you plan to stay in the area for more than a few years.
I also fully appreciate that this situation isn't true everywhere.
The idea of home ownership is that you aren't even (really) paying rent. You are investing and the money should return at some point in your life.
It's reasonable to conclude that your house could lose money, BUT there is a reason real estate companies exist. If you purchase homes with a focus on investing (and perhaps living there for a time) you will come out ahead.
One of the more eye-opening assignments I've had was working with portfolio theory for a bank. Portfolio is pretty much hoppycock used to explain for the customer why they bank lost money on your investment. Giving you nice charts for how much risk was taken and how they performed compared to some index. While portfolio theory in itself is BS it demonstrates well how risk is something that has a value, and protecting against that risk costs money (hedging)
Texas Hold'em is the same, what is the risk (odds of winning) and how much can I win determines how much I can bet (invest) in a hand (home).
With homes people have no proper sense of the risks they're taking. Cognitive dissonance together with a surprisingly short view of history and survivor bias makes investing a home seem like a no brainer.
Its often futile to even have a discussions of potential risks with a homeowner because they don't want to hear it. Sure the risk might greater or it mighty be less in the same way that you can play russian roulette with one bullet or five, but there's always some risk and often greater than you would think in these times.
Homeowners however vehemently will deny any risk and keep spouting about how homes have gone up in the last 5, 10, 20 or whatever years and some neighbour who made it rich. In any case they say if the price goes down I'll stay put until it goes up again since I have no plans of moving, like the bank won't take your home if it goes down enough that you can't cover your mortage.
I'm not saying you absolutely shouldn't by a home but at least one should be aware of the risks :)
The key is to do everything possible to minimize how much interest you pay, usually by shorter mortgage terms and paying off the principle as fast as humanly possible.
I wish I had the money I spent on rent when I was young and put it into a mortgage instead. I would have lived in a nicer environment, had more space for stuff, and had rooms I could have rented out in turn (which I do off and on over the years, you can usually pay off the interest every month just by renting out a spare bedroom).
- property taxes (1.15% in Santa Clara county), adds up if you own for more than 5 years
- HOA fees if any, typically responsibility of a landlord in rent environment
- one needs to buy/install/maintain appliances
- overall maintenance cost that will vary widely depending on the age and location of the house
While I don't disagree with you, home ownership is not for everybody and definitely limits one's options as far as job location, etc.
If the city of San Francisco (where my wife and I live) made a committed effort to build a stable stock of rental property that allowed families of 3-5 to rent for less than $3k a month, I guarantee you'd see more families sticking around instead of fleeing to points north or east. Instead, you get mostly young, single (your "bowling alone" category, less likely to show up at those city council meetings) splitting 3 bedrooms four ways and paying $4k for the privilege of all sharing one kitchen and one bathroom.
I'm optimistic that all of the new housing being put up in SOMA will help alleviate this but there needs to be some complementary regulatory structure to help keep those community types (which are often what the young singles become in 5-10 years) around. Otherwise, SF is quickly on a path towards being a place where only the rich, the young, the single, and the poor (via subsidized housing) can afford to live. The middle gets squeezed.
Only over a longer scale. Over a short scale, say 1980-2010, interest rates have gone from 20% to practically zero. So Joe 6 Pack who is going to pay $1500 no matter what interest rate exists, has caused the previous owners selling price to explode. And once prices start exploding, the bubbly pile on begins.
Its also a fad. Post 1950 no $ should be spared on education. Post 1990-ish no $ should be spared on real estate. When the fickle public changes their mind, look out below!
Where many people live you can buy a house that would cost well over a mil in SFO and have it paid off in 3-4 years. Imagine you could live in a very nice house and only pay 2-4k in property taxes a year-
Owning a home makes the post-work, part of your life much more economical too. I would argue that obsession with home ownership is only crazy if you live in many parts of CA, to apply that to the whole country is grossly wrong.
If you make decent money, and most likely will for the remainder of your life (aka used car dealer), then it is probably a better option to not own because you can always pay for rent.
Second, taxes are significant. Where I live (Fargo, ND) property taxes equal a rent payment alone. So it almost makes more sense (monetarily) to pay rent and invest the extra money into something more lucrative than a home.
Let's not forget that I have to heat that house all winter, which is a couple hundred a month in and of itself. I could go on.
At least, that's my guess.
Because for most, it's not an investment, it's a hedge. Your demand for housing will not be going down as you get older, but it will become increasingly harder to manage.
>>>> It's like people have forgotten about the housing bubble popping just five years ago
Not everybody did. Some found it a pretty good opportunity to finally get into the market while it temporarily became a bit less insane than usual. Home ownership doesn't have to be with a goal to strike it rich on a bubble, it may be to minimize housing expenses too.
There is an incredible feeling in owning a home that you love and plan to spend your life in. We get to plan the changes we'll make over the next decade. We can plant a tree and watch it grow. We can truly unpack our stuff AND our lives… which it's hard to ever do when you rent; most people I know move every 1 to 3 years. At that rate, a lot of things feel like they're never worth it. You don't hang curtains because you think "I won't be here that long" then you wake up and it's been 4 years and you never had curtains and you wasted all that time. (Actual curtains… and metaphorical curtains, too.)
Granted, you don't get that feeling if you just buy whatever's available. (And probably nigh impossible to manage in a place like SF.)
Our house is a special place. It's historic; we feel obliged to take good care of it, because it will outlast us. It's an indescribable source of joy. And yes, there's angst, too -- that always comes with loving anything, be they people, animals, organizations, or things. It's worth it.
The money is the absolutely last concern.
Also, community. My wife was sick in bed for 3 months, our neighbors came and watched our kids every morning from 8:00am-12:00pm so I could work and continue to support my family. You only get that from a neighborhood of homeowners.
It's crazy, isn't it? I was looking at housing prices recently, for places within a 30-35 minute train commute of work (I refuse to make a car part of my daily routine). In New York, for $750k or so there are 2-3 BR places in good school districts in Westchester, right on the Metro North line. Not cheap, but not entirely outside the long-term plans for a two professional family. Similar places in Palo Alto or the like seem to start well over $1 million. Over a million, to live in a place where the nice restaurant are in strip malls!
And if you can expand to secondary cities... it's incredible what kind of water views you can get in downtown Seattle for $500k.
It's just http://dl.dropboxusercontent.com/u/13608503/Daffy_Screwball....
But yeah, Bay Area prices are really high.
The problem with Cal Train seems to be that you have a mini-commute at the beginning and end of every trip. My Westchester town had several residential high-rises just a block or two from the train station. Looking at the Millbrae station, there is nothing around it--it's designed for people to drive into. And on the San Francisco side, the SF Caltrain station isn't exactly amazingly centrally located...
The nice thing about Millbrae is that the station has both Caltrain and BART, so you would be able to commute to most SF tech companies without driving.
But the train ride is 30 minutes, (BART doesn't do express), so it would be more like 40-45 minutes with walking and waiting.
E.g. this is a Michelin-star place in Cupertino: http://goo.gl/maps/VsVNL. Right next to the highway, surrounded by a parking lot. Might as well be a Taco Bell.
This is another Michelin-star place in San Mateo: http://goo.gl/maps/KjdnP.
Of course I'm being somewhat facetious. There's not a lot of places to put a restaurant in the suburbs other than in a strip mall next to a Walgreens or in a building surrounded by a big parking lot. But that's my point--you're paying Manhattan prices to live in a suburb. Not a compact, walkable one like Greenwich, either, but a sprawl-y generic one that looks more or less like the faceless generic suburbs in any other part of the country.
It's true, the best restaurants (combination of great food and not super pricy) in the Valley are in Strip Malls.
From 2004 to 2007 only an average of 2,220 units were built. From 2008 to 2012 a mere 1,710 units were built . New construction has been impossible. It looks like it's picking up slightly, but not nearly as much as it would in a fair market.
"22,000 residential units are in various stages of approval and construction."
More units are under way now than have been built from 1993-2011.
As an analogy, consider roads: in the D.C. metro area, road construction is about 10 years behind where it needs to be given the population surge, and they have been building flat-out for a decade now. Imagine if they had spent the last 20-30 years not constructing new roads even as the region grew dramatically in population. That's the state of the San Francisco housing market, and indeed the housing markets of most cities that had policies in place over the last several decades that were hostile to development.
The first is most certainly true. The second may be true, but we'll have to wait and see how it impacts pricing. For now, you can't live in a building permit.
BTW, here's a graph of permitting and completions in SF for the last 60 years: http://www.spur.org/files/u41/f1.png
The article is from 2012. There are 140 projects under construction RIGHT NOW.
For example (not in 2010-2011 range) in 4th quarter 2011 Sacramento lost 2200 homes to foreclosure vs. 160 for SF.
Foreclosures don't indicate overbuilding, they indicate that people can't afford to pay for their homes.
If you were looking for something that indicated overbuilding, I would look for declines in the ratio of rents/sale prices to median metro income. If housing is getting cheaper compared to incomes, that means supply is catching up to or outstripping demand. This could happen regardless of boom, bust, or stagnation.
See http://www.usnews.com/news/best-cities/slideshows/the-10-mos... and http://money.cnn.com/gallery/real_estate/2012/11/29/least-af... for examples.
Not true. There was a huge housing crash 20 years ago, and large swaths of the city were extremely affordable until about the mid/late-90s. It's only in the last 10 or so years that the city has acquired the perceptions you describe, and certainly post-9/11.
You may be talking about, what, gold miners and prostitutes? I don't think that relates to the current situation and at any rate there was open space within city limits within the lifetime of your grandparents.
You're right about sellers milking the peaks, though. Prices have been going nuts ever since the economy showed a hint of uptick, and it's certainly opportunism at work. Might as well get yours before the terrorists ruin everything, or something. I guess.
IIRC that was caused by the 1989 earthquake - all the transplants got scared and moved and rent got affordable as a result.
There was a recession from 90-92 and a nationwide housing bust around that time due to some tax changes under Reagan that fed overbuilding in the late 80s.
How do you stop house prices from going up? You can't put a cap on property values without turning bidding into a lottery and screwing owners out of asset appreciation. You could make it easier to afford expensive houses by increasing the money supply, but our interest rates have been pegged at effectively zero for four years. You could build more houses but that seems unlikely given the political climite in SF. Perhaps though you can geodiversify an industry, which actually this guy is doing by leaving SF. I'm not sure how you can regulate that though, except by capping the number of jobs in a given industry, kind of like with taxis.
Many desirable neighborhoods are seeing market rents increases in the double-digit percentages, every year. Some parts of SF are experiencing >20% YoY growth.
That's real estate hyperinflation, far in excess of the normal appreciation you'd expect in a healthy economy with increasing population.
And the solution to real estate hyperinflation is to build more.
They don't have a chicken because they don't have an egg.. they don't have an egg because "Fuck chickens; move to Manhattan if you want chickens."
Clearly, higher density construction in NYC has dramatically reduce prices there.
There is no amount of construction in the subset of 49 square miles trendies want to live that is going to solve this problem. There are a million 1%'ers from around the world that will snap up a $750K condo before you 5%'ers can get it.
Or more accurately, they have prevented the exact sort of rent explosion that SF is experiencing now. Manhattan is expensive to live in - but rent prices are growing at predictable and relatively low rates. There are even desirable, wealthy neighborhoods where rents are slowly decreasing.
The fact is also that artificially restricting oneself to Manhattan makes for a easier comparison to SF, but is not representative of the housing situation overall. Commuting from Brooklyn, Queens, and the Bronx into Manhattan is trivially easy, and rent (even if we strictly limit ourselves to the low-crime, desirable sections of these boroughs) is lower than SF.
Take Brooklyn for example. Plenty of good, safe neighborhoods with solid subway access where prices are flat.
Allow people to actually build things, rather than insisting that 100 year old, wood-framed 3 story split level houses and no new ones are the perfect housing solution for everyone forever.
Maybe Peter Thiel needs to build his floating seasteading metropolis. If he put it in the bay you could connect SV to Newark and Fremont via a gentrified version of The Raft from Snow Crash.
This canard keeps getting repeated over and over in comments. Not sure if it is a projection of bias, or ignorance, or just denial of the facts.
The reality is that tens of thousands of units (22,000 since the article, a year ago, more now) are either in construction or in the pipeline. This is a construction boom.
SoMa should have massive sky scrappers being built on every block, it's the perfect location to build this high density housing/offices solution (big blocks, flat land, underutilized and close to the city center). And I mean real skyscrapers Manhattan size or larger.
The city should take care in SoMa to make sure they do not allow new skyscrapers that do not reach a minimum height. The space there is valuable (even if it's not used correctly now). You wouldn't want a situation where medium density is built instead.
Don't concentrate outrageous salaries in one urban area?
Yes, that is the limit of my knowledge of San Francisco.
I also looked at Fremont/Newark, but have never physically been there. What's that area like? School district maps say some of the schools are decent.
FYI I am 35 with a new baby, so the question is "can a family live in SF comfortably without having a cash-out event or a salary in excess of $240k?" The offer I'm pursuing could, if it pans out, be good but it probably would not quite be that good.
This is from someone who has been trying unsuccessfully to buy a home in the Bay Area for the last year and a half. We wrote an offer on a home that got 45 written offers and ended up selling for 25% over asking.
* SV "aging", in this case, having kids.
I also hear that the SV school districts are not up to what you'd expect for a region with >$1mil house prices.
If you care about living somewhere hip and exciting, Fremont is not for you. If you're okay with suburbia that's outside the heart of Silicon Valley, but still reasonably close, it's worth considering.
Have you considered living in one of the many cities on the peninsula that are all extremely close to the Caltrain and BART tracks, 101 & 280 freeways, and much better schools than those in the east bay? They're also very close to the actual city you would be working in (Mountain View). Much closer than SF.
Fremont is decent as long as you don't mind boring. Unfortunately, the commute over the bridge can really suck during rush hour (this applies to all the East Bay communities). Sometimes I'll take 237 around to Mountain View to avoid it, but both 880 and 101 have severe traffic issues.
A bunch of my friends actually bought houses in the Cambrian Park and Willow Glen parts of San Jose. These are still reasonably affordable, safe, and they're about a 20-minute commute down 85 from Mountain View. 85 is a parking lot between the Googleplex and about El Camino or Fremont Ave during rush hour, but opens up fast once you get past 280. If you're getting on at El Camino (eg. a downtown Mountain View office) and then commuting to San Jose it's not all that bad.
I've heard Santa Clara isn't bad either - it's 10 minutes from Mountain View without traffic (much worse in rush hour traffic, since it's on 101), but it's largely Korean/Vietnamese/Japanese immigrants and so prices have stayed relatively low so far.
All of these communities are really boring, with basically no downtown or civic events. One of the large factors that drives prices up are young professionals that want a high quality-of-life in addition to working at a fancy tech job.
- BART station: easy ride to the city
- Dumbarton bridge if you need to cross to go to Palo Alto (need to pay the toll but totally doable)
- taking 880 south, and then 237 you can then be in Mountain View/Sunnyvale area in 30 to 45 minutes by car depending on traffic.
- House prices in Fremont last time I checked were going up but they were still lower than the City or lower than south in SV
Overall Fremont is a good alternative choices which give you access to the City/Berkeley in 40 to 50 minutes drive/BART, and to the SV in the south.
I was living in Fremont with my wife (no kids) for a salary way less than $240K, so totally doable IMHO.
I think the only responsible thing a family can do is not to live there if they can't afford it. There are plenty of jobs for people not living in SF, really.
>>> Imagine what all that money in SV could be doing if it weren't all sucked up by real estate.
I'm not sure I understand how this works. When you buy a house, it's because somebody else sold it to you. The money aren't buried in the backyard - they went to somebody. Who is free to invest it in whatever they want.
I think the basic mistake here is different. Primary residence is rarely an investment (unless you plan to severely downsize sometime in predictable future) - it is an expense. Too many people wrongly regard it as an investment and make poor choices.
You mean can't afford to buy there. Which is why those of us who haven't made it rent, and put 3 people in 2 BR apartments. Or get a house in a less hip spot with 4 friends. Those who made it in SF/SV did it like this, and so will the next generation. That doesn't make it a good thing that ownership is so unrealistic, or that people who aren't young don't want to do it. But the idea that the next generation of software leaders won't keep coming to SF because of price is just wrong. As long as that's where the best companies and opportunities are, ambitious young people will move there.
This is what will kill the golden goose of the tech economy - if highly qualified and valuable workers choose not to move to SF/SV because they don't think they can live there, the tech sector will lose competitiveness. I moved here after 6 years of uncertainty, and I think it's worth it but the fact that I wanted to and still waited so long is a bad sign.
Workers are the key resource for new tech businesses, and if companies can't hire them, they won't grow or be formed in the first place.
It's nothing more than simple supply and demand at work. Real estate suffers from being one of those markets where its very hard to create more of it (you can build taller buildings or build new cities, that's about it).
The reason real estate is so stinking expensive in huge parts of California is because so many stinking people want to live in those areas.
Or they are a two-income family where both make good salaries. Then it's eminently thinkable, even advisable.
Here, have an Indignation: http://www.youtube.com/watch?v=EtCiP8B2xpc#t=7s
Someone said to be about Austin, "everyone in Austin does 3 things". There's something to that. For just one example, Austinites aren't afraid to work for the enterprise or in something less sexy than local/mobile/flavor-of-the-month because you're not expected to go all-in on one job at a time (then burn out after 14 months and replaced by another chump). This creates the cross-pollination and breadth of knowledge that generates innovation.
Bay Area people are terrified to go anywhere near an unsexy industry because they live in a culture where your job is all you do. In Austin, where 9-to-5 seems to be more tolerated, people are more willing to explore unsexy problems and hear people out in other industries-- and you learn a lot from that.
San Francisco and New York seem more fixated on a "do one thing, go all-in, and do it very well" ideology of work. That's fine after you have some good ideas but it's terrible at generating new ideas. You need the more relaxed, open approach when you're young and getting ideas (plus learning from other peoples') is more important.
It was very hard to want to put your soul into building a company (which as a founder you generally always have to do, at least for a while) when everything is just so mellow in Austin. All of my friends were leaving their offices by 5pm to go drink $3 beers every single day, and likely go see a band play that evening. I of course did this too, because I wasn't going to be the only person working through the evening.
Then there is the cost of living. It's absurdly low compared to the bay area or NYC. I could have a great quality of life in Austin by doing 1 - 2 freelance gigs per month, easy (I know this because I did it for 3 years before starting a company). This translates to not feeling the small window of opportunity you'd have to build a company that becomes profitable (or you can raise money with) out in the bay area, because you can coast by on so little money. This also presented a talent/hiring problem when I did try to make a startup happen in Austin. It was VERY hard to convince freelancers who were making 100k a year and putting a majority of that in the bank to come make less for my crazy dream.
In the Bay Area I do not have these issues. EVERYONE works insanely hard. The cost of living is insane, so I can't just sit around and take my sweet time. Becoming profitable as soon as possible is all I think about.
I'm not saying the Bay Area version of this isn't its own extreme, because it is definitely out of control, but there has to be a balance somewhere between the two.
There is nothing wrong with this. When you get older, you'll realize soon how much quality of life is important. Wait until you want to start a family...
Yours is an interesting perspective. It seems like both extremes are a double-edged sword. On one hand, slower mellower and less expensive places give you the free time to think and play and create. But on the other hand, they drain you of your sense of urgency and they create a culture where people don't hustle -- as you say.
I'm trying to get something off the ground in Asheville now (https://www.zerotier.com/) and it's required a lot of self-motivation. There's not a huge tech scene either, so if it starts to get real traction I'm not sure what resources I'd have to surf the wave aggressively.
On the flip side, I lived for quite a while in the Cambridge, MA startup orbit and experienced my fair share of hustle. What I saw was a lot of me-too, a lot of crackpot stupid ideas frothing around and getting funding because the founders were connected, and a lot of workaholism that eventually drained people (including me) of genuine creativity or excitement about what they were doing. Costs were high, time was short, and inspiration got thrown under the bus for the need to perform.
So I agree that there's probably an optimum in between. My sense is that Asheville, Austin, probably Portland, etc. are probably too far on the mellow end and that today's SF/SV is probably too tweaked out and overpriced.
I get the feeling that SF and SV in the 1990s was right at that happy medium. Wasn't there, so maybe I'm wrong, but that's the sense I get.
That's a perfect way to describe it...
All I was trying to do was show another extreme, in contrast to the OP's and situation in San Francisco right now. Some people absolutely love San Francisco and probably thrive in the tech scene here, but that doesn't mean it's great for everyone or every startup.
Nor do you (should you, anyway) want the people who work 75-hour weeks at their startups and don't learn any new skills except the one or two things in the critical path of their assigned project (the rest of their work being grunt work they learn nothing from). Those people will suffer a lot to keep their jobs and because they overestimate the career benefit of what they're doing, but they rarely produce anything good.
So you don't want the Austin stereotype (leaves at 5:00, drinking by 5:30) or the Bay Area/New York stereotype (all-in on his employer's assigned work, burns out in 15 months, gets fired but walks away with a tiny sliver of equity that prevents you from forgetting his existence entirely). I agree with you on both. (Not to say that those stereotypes describe everyone in those regions; they don't.)
You want the people who leave at 5:00pm and then work on things that interest them for 3 hours. (Or get up early and work on side projects before coming to you.) Those are the people with the good ideas. Not the workaholic corporate stooges, and not the semi-retired slackers.
Also, there's absolutely nothing wrong with working an 8-hour day if you do it efficiently. Hell, an efficient 5-hour day is probably better than what most corporates put in, even if they're in the office for 10+ hours (that's about shared suffering and its social purposes, not efficiency).
Agreed that Austin isn't as "hit-driven" as SF is. Talent here is more diverse on an individual basis than other tech towns.