There's a sort of ugly urban cycle. First, you get an interesting place. Then interesting people move in. These interesting people do interesting things. Wages go up. Money moves in. Then you have real-estate hyperinflation, and the place becomes unaffordable to anyone who isn't already rich or grandfathered in.
Trouble is: the next wave of interesting people usually start out as starving artists/hackers/entrepreneurs just like the previous wave did.
It's almost as if regional success beyond a certain point accomplishes nothing but inflating real estate, which redirects further success into keeping that real estate bubble inflated. This primarily benefits banks.
Imagine what would happen if this didn't happen... imagine living in a place as inexpensive as a medium-sized Midwestern city, but with Silicon Valley salaries. Imagine how many other places that wealth could go: more startups, more gadgets, better infrastructure, world-class everything, better health care, even generosity. But nope, real estate just soaks up wealth beyond a certain point and redirects it back into the financial pyramid.
Sometimes a place is so unbelievably interesting, like New York, that people are willing to live in a catbox in order to be there. But even then people have a tendency to get sick of this after a while, and anyone contemplating reproducing or wanting to do anything that requires space is out of luck and has to leave.
... imagine living in a place as inexpensive as a medium-sized Midwestern city, but with Silicon Valley salaries.
I'm imagining myself waking up every morning wondering what good it is to be making $XX0,000 if I have to live in this place. My cousin makes ~$220,000 in Yakima WA as a doctor -- her main expenses are weekly flights to NYC.
The reason why people want to be in big cities is because other people are there -- supply and demand explains the high prices. I came from Sacramento, but I wouldn't live there for even double my salary because nobody is doing anything interesting there. The startup scene is non-existent and there are no major universities turning out bright minds. Just more fat people having kids at age 22.
Or are you asking why a SF-style city can't be as inexpensive as Topeka? To that, I would answer: because nobody wants to be in Topeka.
SF isn't a mega-city by any means. It's the 14th largest in the country (between Austin and Columbus). An SF-style city can't be as inexpensive as Topeka. But it could be as inexpensive as Philadelphia or Boston.
San Francisco is the only major city in the US where you a) don't need a car and b) there's no snow. Apparently, lots of people highly value these (and other) factors, enough so that it cannot be as cheap as Philadelphia or Boston.
It's not a question of what would be nice. It's a question of supply and demand.
It is a matter of supply and demand, and while demand in SF is high, it's nothing like say NYC or LA where there are millions of people looking for housing. SF is a medium-sized city as far as cities go. It's a growing city, unlike many, but in the last ten years it grew slower than Boston, DC, Portland, Seattle, San Diego, and Miami. It's not like developers can't build housing quickly enough to keep up with all the demand. It's that the city won't let them.
Perhaps very few readers of HN would like to be in Topeka, but there are also families that have lived there for generations and all kinds of people who I'm sure absolutely love Topeka.
In fact, I suspect they would tell you that you can take NYC or SF and have it (or worse.) The bottom line is to each their own - no reason to disparage other's interests and life choices because you choose to live in a big city and have found a community of like-minded people, it just makes you sound like a pompous jerk.
Perhaps very few readers of HN would like to be in Topeka, but there are also families that have lived there for generations and all kinds of people who I'm sure absolutely love Topeka.
As an additional note, there are also families that have lived in New York City for generations and all kinds of people who absolutely love New York.
Then they get priced out, too. This is why my family moved us to New Jersey at age 5: between crime and school zoning, my parents couldn't stay in their home city of New York and raise children. So to the suburbs we went (in roughly 1994) and by even the mid-2000s we were completely priced out of the city all four of us were born in and very much feel culturally attached to (what with our families having lived there for 100 years or so).
And both my parents had white-collar, professional jobs with salaries and benefits packages!
The point is not NYC > Topeka for everyone -- that is a subjective judgment and you have to pick what's best for you. The point is, for many more people, larger cities have more to offer than small towns. Additionally, on many objective scales that matter to many people -- mainly measures having to do with economic mobility and opportunity -- NYC and other large cities outperform Topeka and the rest of the midwest.
It's not as if I want to live in the Bay Area and spend 1.5X+ on living merely because the population is larger. It's because I have a chance to work for 5-10 years, collect options at some up and coming companies, network with many very successful people, build a career and then retire at age 40 with a 7+ digit net worth. And if I fail to achieve that, I can still land somewhere on a spectrum of outcomes bookended by that goal. The opportunity to do this is very small in Topeka and elsewhere.
So when you say "... no reason to disparage other's interests and life choices because you choose to live in a big city and have found a community of like-minded people, it just makes you sound like a pompous jerk," you're missing the point. I'm not "disparaging" Topeka because there is a community of like-minded people. I'm disparaging the idea that a town like Topeka could just become like SF, only cheaper.
Such a notion embodies no understanding of the reasons why SF is objectively better than Topeka. You are confusing my comparison of the cities on objective criteria with a claim about certain subjective qualities of the places. Yes, some people don't want to put up with the cost, noise, filth etc. involved with big city life and they don't highly value the opportunities we have here -- in my personal opinion, those people have poorly chosen their life's priorities, but objectively stated, they will not enjoy living in SF.
Yakima WA is also where Raymond Carver chose to live & write. Maybe you shouldn't disparage a place just because it's small. I'm sure there are plenty of "fat people having kids at age 22" in Houston, Texas even with the Major Universities turning out bright minds.
That's not an ugly urban cycle, that's progress! Rents and real estate prices go up, prompting new development and increasing density. Much of San Francisco, even near(south of) the downtown core is 3-5 story industrial buildings and parking lots ripe to be turned to high-density use. Right now this "ugly urban cycle" has Twitter and a VC firm moving into the shady Mid-Market neighborhood next to the Tenderloin (Benchmark Capital is literally next door to s trip club) with other startups hot on their heels. This is a good thing.
An "ugly urban cycle" is not when property values rise and people move IN to the city, it's when people flee to the suburbs (see: Detroit, or most U.S. cities in the 1960s).
That said, I agree it's annoying that people tend to pile into city in herds, because it takes on the order of 5 years for real estate to be approved and built to meet demand, and by then there's often been a reversal and you get a flood of supply at exactly the wrong time. But that's actually good for the city too - lots of new housing at low cost.
The problem isn't real estate, it's people - our herd instincts and inconvenient relocation patterns. Similarly, the solution isn't to try and divert money people _choose_ to spend living in preferable locations into health care (where inefficiency and costs are already too high) or "gadgets" (what?) but to get better ways of mitigating the discrepancy in speed between how populations shift and how long it takes to develop new places for people to live.
(PS Downtown Oakland is fantastic and still cheap. Maybe if SF rents get high enough people will get over their hangups about a demographically young downtown with bustling nightlife that's 5 minutes by BART from SOMA)
(PPS You'll notice implicit in my comments is the fact that real estate developers do NOT reliably get rich as the result of a boom. It takes 5 years or more to entitle and build an urban mid- or high-rise housing development, which means it's a crapshoot whether a boom will be on when you're done. In fact developers can go broke if they build now assuming the economy will stay hot because if it's cooled when they are on the market selling they'll miss their numbers. The people who make money in the boom are existing owners who sell and landlords who can jack up rents. As it happens these are the same people who will take a bath when things cool off again.)
Sure, it's not an ugly urban cycle if you're one of the gentrifiers. Then it's full of win.
It's less obviously "progress" if you are somebody who wants to live near the rest of your family, or has a landlord who's decided he'd like a richer tenant, or are in an "urban renewal" zone, which has been bitterly joked about as "negro removal".
I'm a tech guy who has lived in SF a dozen years, so it's all wine and roses for me. But that doesn't stop me from noticing the downsides for others.
Yup, it's less obviously progress for people whose rents spike up, because that is objectively bad, as I said. But long term it's better to have people moving back into urban centers than the massive outflow we had in the 1960s, which did not create a utopia for the largely poor and minority residents who remained, in fact crime and joblessness skyrocketed.
It's complicated and there is suckage all around, as I tried to acknowledge, but having tech companies clustered in the urban core is better on many levels than having them dispersed out into suburbs or the midwest or whatever the OP was envisioning. Was Mid Market REALLY better off with just strip clubs, liquor stores, greasy spoons, and scattered social service agencies than it is with some of those things plus Twitter, a VC firm, and some other tech startups? Really?
We agree that it's not ugly if you've got plenty of money. If you're one of the people forced out, then it is little consolation that the richer people who replace you think the city is "better off".
I'd be really interested to see the argument in which the city is better off in the opposite case - the startups all, as OP suggested, keep to the suburbs (like Pleasanton) or cheaper Midwestern cities (won't the gentrification just move to those cities?) or maybe the middle of nowhere where no one will be gentrified but everyone has to spew loads of CO2 into the atmosphere to get there.
I will say that people are flocking to the suburbs. Many of the artists, yogis and writers I know have chosen to live in places like Oakland and Santa Clara. Not that your usual get-rich hacker would care.
Americans tend to think of "suburb" as meaning "sprawly low-density area with lots of parking-lots and roads," but really it can mean any sort of outlying secondary community.
Kawasaki, and even Yokohama, for instance, are very much suburbs of Tokyo if you look at how people live (a huge proportion of the population commute to Tokyo for work and play), but are also a large cities in their own right, and very densely populated.
A lot of the pain is self-inflicted in San Francisco's case, from idiotic zoning. I'd day Chicago is a reasonably interesting place, interesting enough for 3 million people to live there, and our real estate is pretty affordable.
The problem with SF and NY is that the people living there are selfish and want to pull up the ladder behind them. They like their cute little low rise buildings and won't allow new high density housing to be built.
An enemy of restrictive building codes is converted to an ally the moment the ink on the title is dry.
In fact, the person most harmed probably becomes the more ferocious defender of the zoning restrictions. Because they paid the highest prices, they stand to lose the most by voting away the restrictions that contributed to those astronomical prices.
Actually, this may be how policies like the mortgage deduction or prop 13 can get so entrenched. They may be unfair, but the only thing that seems even more unfair to new buyers is that the benefits would be taken away only after they've paid the heavy toll.
Possibly. I think part of it is cultural though. My wife grew up in a little Midwestern town with 2,000 people. It's got this perfect little 10x10 street grid, because the townspeople wanted to be prepared for when it became a bustling metropolis. I think some people see development as a source of pride, and others are more whimsical and see it as losing the character of the community. And I don't think the mix of those attitudes is uniform across the country.
This very ladder-pulling-up is written into law as rent controls. Although typically presented as a way to ensure that widows and orphans are not priced out by gentrification, rent control is actually a tax on 'people who have moved recently': landlords can and do get stuck with permanent tenants for decades who are now paying 20% of the market rate for their apartment, sometimes less than what it costs to even maintain the apartment. To compensate, they have to raise the rent as much as possible when a unit becomes available, to make up for the cost of carrying the far-below-market units with the permatenants. Anytime you move into or within San Francisco, you're subsidizing the people who haven't moved recently.
I've been taling with friends about organizing a voting bloc to get fellow tech workers in SF to vote on critical issues that affect our lives (rent control, zoning, homelessness, transit). Such an important part of the city's revenue base is virtually unrepresented in policy decisions.
IF YOU ARE INTERESTED: shoot me an email at dan@dangrover.com and if there's enough interest, I'll try to coordinate a meeting/discussion!
I can only hope you're right. The history of the supes though is that they pander to the people who want to "conserve the rich history and diversity of the city". It sounds nice, but what it results in is paralysis and band-aids (for example in the provisions to grant building permits is to build "affordable" housing.) So the builders build million dollar condos (who only few can afford) and the below-market condos -who only the near destitute qualify for). That leaves most people competing for the few actually (non subsidized) affordable places, which due to pressures are the leftovers (substandard inventory -old, needing repairs, lousy areas, etc).
I have little respect and some disdain for the supes . They have driven the city's progress into the ground. Anywhere else, these policies would have driven the place into a Detroit West, but they get propped up the the surrounding valleys' wealth.
I could only wish the city was governed a bit like SJ --without the sprawl.
If we stay in the grow-or-die culture that we've been in for the past 15 years, then the other option is to move. You can't grow if you can't hire, and you can't hire if your employees don't have any place to live.
I don't know if you can fix it, or at least not in the short term, no matter what kind of critical mass you get. Housing stock has a lifecycle of 50-100 years. Anti-development policies can create a "housing stock debt." In New York, which doesn't apply rent stabilization to any housing built since 1974, 60% of housing units are still rent-stabilized!
New York hasn't grown nearly as fast as San Francisco, so most of the existing housing stock is adequate.
Everybody has a price at which they'll sell, and as more people arrive wanting housing more property owners will get offers from developers that are too good to turn down.
SF is on a peninsula and Manhattan's an island. Chicago is relatively low-rise as well, but there's a lot more land in back of it. I hate the SF planning process, but there's no question that the city's growth is partly constrained by geography.
Yes but over 1/3 of the city population is concentrated in the lakefront neighborhoods. Everywhere you look there are shiny, new condos and apartment buildings.
I am thinking of moving to the Chi and was surprised that rent is less than half of the average bay area price. A lot of craigslist ads even tell applicants that they require a check for eviction court as part of their deposit. In total contrast to SF's rent controls.
(2) Definitely move here. Chicago is a fantastic city and the reason you don't hear about it more is that it's underrated.
If there's a kind of neighborhood you're interested in living in, I'm happy to help point you in the right direction. You should have no trouble finding a place.
Obviously you have several factors in play, and available land is one of them. But both SF and Manhattan would be cheaper than they now are if they had Chicago's more liberal attitude towards development, construction, and rent controls. Not as cheap as Chicago in the limiting case, but still cheaper. Indeed, even if SF had only New York's somewhat more draconian attitude towards development, it would be a lot cheaper than it is now. Rents in SF are comparable to Manhattan even though Manhattan has half the land area and twice the population.
There is also the sunset which has good food, cheap rent, and the M, L, K and N to get you places.
But the issue here is there is nothing good in soma besides jobs. In the weekend, I don't want to go to soma. I want to go to Northbeach or the mission or the castro.
All that being said, I haven't lived in Dogpatch, so it could be fantastic.
Would you rather pay for transit twice a week or five times a week? And dogpatch is relatively nice, especially if you include Potrero Hill which is a short walk away.
Re: real estate prices, go read "The Rent Is Too Damn High" by Yglesias. Yes, it's a problem. And regulation is a big, big part of it.
Also, there are plenty of places where you can make money working in tech and have a relatively low cost of living. Austin, San Diego, Spokane, even Seattle isn't too expensive, compared to the bay area.
Which one of these cities doesn't fit.....Spokane? Since most of my family lives there, I would love to hear about tech opportunities there compared to...Austin, San Diego, and Seattle.
That doesn't really make for a tech scene, as much as I would love for that to be true. I couldn't go to Spokane and a get anywhere near a comparable job as I could in Seattle. Even Salt Lake City has a better tech scene. Spokane lacks a flagship university, unlike the other cities.
The problem with this theory is that in the hypothetical midwestern city you describe, there is no incentive for anyone to pay Silicon Valley salaries. Everyone can live on less money, so that sets the baseline. Premiums or discounts are applied to that based on the rarity of the employee's skill set.
If you're running a company, you have a limited amount of capital to work with. Your pay scale is determined by the markets you operate in - the prices competitors are paying for employees, and the prices competitors are charging for their product or service. You can't just say, "Well, I'm generous, I'm going to pay a million dollars a year to all of my employees." You'll be bankrupt in a month that way.
The real estate price inflation you describe is a side effect of this process, not a main element. With the exception of situations where external capital enters the system to finance a bubble, as in much of the US and Spain in the early 2000s, it's the sign of a healthy local economy where functioning businesses can employ large numbers of people because they're all generating enough cashflow to do so.
The alternative scenario -- Detroit -- is far, far uglier.
Interesting that you bring up Detroit. Detroit once had the highest salaries in the US from the auto industry, and priced out everyone not involved in the auto industry. Then the auto industry crashed.
That's not the only reason Detroit crashed, but it's a contributing factor. The others were racism and "white flight." Detroit sort of got a perfect storm.
If something ever does massively disrupt Silicon Valley, I could see the Bay Area undergoing a nasty crash too. Probably nowhere near as bad as Detroit since it's a prettier place to live and is more diversified, but still ugly.
SV today really doesn't appeal to me because it is nothing but hackers. There are no artists, no hippie bohemian weirdos, no writers. These people can't afford to live there. In fact, I'd say it's even worse. There aren't even many hackers doing truly creative projects outside startups running around looking for funding, because you can't do anything that isn't going to get you that big cash out effect. Not if you want to afford to live there. You also can't easily bootstrap without outside funding, which means you can't own your own stuff. You have to have a financier with deep pockets.
All of that is the fault, primarily, of real estate hyperinflation.
I think part of the reason salaries are so high is that employers have to compete with these costs. If the real estate price / cost of living went down, salaries would be down as well. There is quite a bit of data showing that Bay Area salaries are higher than anywhere else in this industry.
How much of it is baked into the cost of living? If my rent is 30% of my salary, and I'm looking at a job that pays 30% more but the rent is double in the area, isn't it a wash?
Sure, that's possible. When I moved to San Francisco I traded my car for a MUNI pass (and eventually a bicycle) which saved me a lot of money. A few months ago I tallied up how much my parents pay for housing + energy + transportation and how much I do, and the amounts are roughly the same, except I spend almost all of it on housing and they spend a lot on energy and transportation.
That said, most people who move to SF don't give up their cars.
SF isn't the only city where you can live car-free ;)
Also, cars are, sadly, much cheaper than houses. My spouse and I share a car and the TCO is not anywhere near our rent. At least an order of magnitude, maybe two.
One thing you left out is that people make laws to try to stop people from moving in. Those laws make it harder to build which does not stop people from moving in, but makes housing more scarce which leads to higher prices.
What would San Francisco look like right now if they'd allowed high rises to be built for the past 30 years?
I tend to believe these places become interesting due to the fact that so many people live there. There's bound to be interesting people based on sheer numbers.
Keep in mind NY and SF were founded on industrial business and immigration; not founded on interesting people.
Imagine what would happen if this didn't happen... imagine living in a place as inexpensive as a medium-sized Midwestern city, but with Silicon Valley salaries. Imagine how many other places that wealth could go: more startups, more gadgets, better infrastructure, world-class everything, better health care, even generosity. But nope, real estate just soaks up wealth beyond a certain point and redirects it back into the financial pyramid.
That sounds at least a little bit like where I live now. We don't have SV-level salaries, but the tech industry can pay roughly $60k-$80k per year in a place where $45k is the median dual-income household and $33k is fairly comfortable for a single adult.
A few key differences from, say, most of the United States, that I think can transfer over to other places without getting into local culture:
* There's no state/provincial/regional government, except in rural areas, where a group of villages is governed by a regional council. If you live in a city, you've got the municipality and then the national government. One less layer of abstraction, and the municipality is entitled to take decisions that in the USA would fall to the state-level government.
* The municipality levies "arnona" (our word for the old English "rates" system) as a tax on the square-meterage of dwelling units. The occupant pays the tax, but like a VAT, the arnona is factored in as part of the price you pay for a rental unit. The effect is to discourage the development of very large dwellings in favor of dense buildings full of smaller dwellings. The other effect is that we don't have conflicts over assessments of property values, because they're not taxed. Living in a beautiful, well-located house won't stick you with extra property taxes unless the city specifically decides to zone your area for a higher per-square-meter rate. It works pretty decently, overall, although there is a problem of schools being underfunded (though this may be a political/national problem rather than structural).
* Urban planning here is pro-urban rather than anti-urban like in the States. The typical family dwelling is a three-bedroom apartment (one master bedroom for the parents, one bedroom each for your two children), building is planned in terms of semi-self-contained neighborhoods, and zoning consistently sprinkles in a certain amount of parks, a certain amount of schools and clinics, a certain amount of community centers and houses of worship, a certain amount of sports fields, and a certain amount of mixed-usage residential/commercial/office space per neighborhood.
* Public transit here is not just for poor people. Bus and minibus systems operate extensively, including between cities, and there's also a coastal intercity rail line and a small subway that goes up and down the mountain we're built atop. I estimate I can reach anywhere in this city that I might work within 30 minutes of automotive commuting, 30-60 minutes on the bus system, and that's if I can't actually walk to it.
* NIMBY is not a thing here. Period. Only major real-estate developers go around actually thinking their land holdings are so freaking important that they should have the power to block other people's projects, particularly municipally-sponsored ones. There are whole neighborhoods built around the shipping port, the oil refinery, and the High-Tech Park where the BigCos live.
* As far as I know, you can't actually build things outside cities or towns. The countryside is countryside, and nobody is necessarily entitled to land rent or real-estate tax from it. So big things like tech parks and office buildings get built in cities, because you have to build them inside some municipality recognized by the national government and once you have that requirement, you might as well put it near your prospective employees and customers.
TL;DR: No, cities and urban living do not innately cause ultra-high real-estate prices. Yes, public policy matters, because urban planning, transit infrastructure, land taxation, and a strength of property titles appropriate to urban life all provide rules and incentives for building a city that's actually nice to live in. There is absolutely no reason a place like Silicon Valley can't make itself a very nice and even affordable place to live, except that the existing residents enjoy feeling privileged. They get to feel privileged, because in SV and in many other desirable American places (Boston-Cambridge and New York City come to mind), real-estate has become a status good with a permanently fixed supply. They'd feel somehow insulted to find out that their land is a mere commodity, to be bought and sold in bulk as common families want or need.
Trouble is: the next wave of interesting people usually start out as starving artists/hackers/entrepreneurs just like the previous wave did.
It's almost as if regional success beyond a certain point accomplishes nothing but inflating real estate, which redirects further success into keeping that real estate bubble inflated. This primarily benefits banks.
Imagine what would happen if this didn't happen... imagine living in a place as inexpensive as a medium-sized Midwestern city, but with Silicon Valley salaries. Imagine how many other places that wealth could go: more startups, more gadgets, better infrastructure, world-class everything, better health care, even generosity. But nope, real estate just soaks up wealth beyond a certain point and redirects it back into the financial pyramid.
Sometimes a place is so unbelievably interesting, like New York, that people are willing to live in a catbox in order to be there. But even then people have a tendency to get sick of this after a while, and anyone contemplating reproducing or wanting to do anything that requires space is out of luck and has to leave.