Seattle has had a nearly identical slowdown, so perhaps not entirely due to California emigration... although the water is muddy - reportedly people are exiting Seattle for greener pastures as well.
I have a theory that a major portion of the population in Seattle is always churning. Lots of people moving in and out (Like a college town). But if they can’t get people to keep moving in, you end up getting huge deflation.
The weather is a shock to lots of people.
I just sold my house in Seattle and will be leaving next month.
>Eventually, making it a rotten place to live for anyone who's not a millionaire had to catch up to it.
Seattle, Portland, Austin, Denver, etc would do well to heed the warning. I'm sure they won't though because "mo' money, mo' problems" is a lesson cities haven't learned yet and there's no reason for them to learn it now.
California population went up by 2 million in the last decade. So this is unlikely. It has more to do with bear market, interest rates rising, and new construction
Why would they divest now all of a sudden? As far as I know most of the Chinese money went into Toronto houses anyway, though I am not sure why.
As far as SF - everyone there seems to think they will never lose money on real estate and it will pick back up within a year or two whenever it drops.
SF was weird to me - I expected it to be a huge city, and it's this town with a cool bridge, expensive park, a bunch of overpriced houses, and a scooter app which gives you a distinct map of the "bad" neighborhoods.
This is a hot issue up in the Seattle/Vancouver area as well. tl/dr, the proper studies I’ve seen suggest foreign money doesn’t have as strong an effect as most people assume, and where it does it amplifies trends rather than drives them.
Does there actually exist a dataset that shows this?
The data that you need is income, age, wealth (loans), purchase price etc.
I dont even think the government has this data, and even if it did Im guessing for privacy reasons this dataset would never be made public.
California county assessor records are, or were public. When I worked in Sacramento a decade ago, you could look up property by address on the county website and not only get the assessed value and taxes owed, but the name of the owner and realtor, past owners, price paid and amount of loan. Seems like much of that info has been removed from the public facing website, but that doesn’t mean it isn’t available for purchase. That’s presumably how Zillow gets its data.
The records have names, but how do you correlate that with nationality? I.e., there are plenty of people with Chinese or Indian names that are Americans.
It would be a statistical estimate. Some foreign buyers may have trusted go-to realtors who specialize in these kinds of transactions. IIRC, home owners have to indicate whether a home is a primary residence or being used for rental (for tax purposes). All these factors may make the statistical estimate more accurate with reality.
"The study found that two-thirds of all sales of detached houses in the University Endowment Lands, Dunbar and Point Grey neighbourhoods were purchased by buyers with non-anglicized Chinese names. That group purchased 88 per cent of houses priced at more than $5-million."
Sure, though that study was done in Vancouver, and their laws about real estate records being public record might be different than California or the other U.S. states (the article mentions only the methodology regarding Chinese names). You asked if there was a dataset that could be used in studying impact of foreign buyers; I was just pointing out that the government most definitely collects data of real estate transactions and generally makes it publicly available in the U.S.
A weakening Chinese economy might cause a lot of property divestment in the US (and not just in the bay) if those owners need cash to get through it... it’s a good question.
In the past 3 years, all houses in my small neighborhood (6 out of ~40 houses) were bought by employees of Google, Facebook, and Apple.
Last week, one nicer 4BR house sold for 20% less than a smaller 3BR house that sold in April for a ridiculous $2.4M (that then underwent major remodeling for 6 months.)
Now look at the stock price of those companies between then and now, and the increased interest rate.
AFAICS this has not to do with foreign investments unwinding or people moving out of CA, but houses having become too expensive compared to what people could afford earlier with a mix of increased fear and uncertainty thrown in.
In my area your competition is banks with investors (invitation homes/blackstone group). I'd say the problem is locale specific depending on the utilization and profitability for investments
Is that in the Bay Area? I’m surprised that current prices make it attractive for a hedge fund to invest in rentals, because the price to rent ratio just isn’t there.
I lived by the beach outside Silicon Valley. My neighborhood gradually became more and more deserted. Executives would buy houses in the neighborhood, and just stop by once or twice a year to use it. At some houses I never saw anyone ever - over many years.
I think the real issue is that we let market forces determine housing prices and housing strategy. Housing is, like medicine, something that is poorly served by markets - since markets distort basic resources away from the common good.
I remember reading that Sweden didn't want retirees to be subject to random market forces for housing. So they subsidized housing and in exchange restricted the profit when sold. So, really, the point is that we could set up systems to do whatever we want. Those who say "it can't be done" are expressing a philosophical position - while falsely claiming that they are just stating facts.
Absolutely this. Imagine what a Facebook millionaire could buy when the stock was above 200 and now 140. 30% less down payment, no? Imagine what an Apple employee could put down at 235 vs at 140? Imagine what a Netflix employee could put down by cashing out at 400? Of course rates matter but from what I hear they will not go up much more from here. Eventually these companies will recover and most of them will go higher (they are becoming de facto monopolies) and the watch the prices although it may be a couple of years, but you never know, the stock printing machine is still running.
It depends on the amount of risk and diversification you are looking for as well as where you are in your financial career. For example, if you have no college debt, and can afford to live off of your salary alone, leaving RSUs as company stock when they vest is no different than a non-employee buying shares of that stock at the vest price.
Diversification is great but not everyone is in the same financial situation to assume there is a one size fits all rule.
> leaving RSUs as company stock when they vest is no different than a non-employee buying shares of that stock at the vest price
Wrong - if an employee holds stock in the company they work for, they are doubly screwed when things turn for the worse at the company. They lose asset value, and they may lose their job. Its a lousy idea to hold more than a trivial amount of stock in the company that employs you.
You’re not talking like an investor. An investor buys something because he thinks it will be worth substantially more in the future. He doesn’t care if there are short-term fluctuations. If you think GOOG will be up 500% by 2024, you aren’t going to sell before then, because as an investor, you aren’t investing with money you need, that’s what salary is for. So it doesn’t matter whether you stop working for the company or not. You have your 6 months living expenses in liquid assets, so you don’t need to seek your investments. With this kind of thinking, the parent is right that an employee not selling RSUs is the same an a non-employee buying stock.
Let’s say Google suddenly goes bankrupt or otherwise blows up, like Bear Sterns or Enron or half the banking industry ten years ago.
The chance of a dev getting the same job with the same comp is suddenly much lower, and will be like that for years, especially if said dev is looking for another job in the Mountain View area.
Google crashing would flood the market with very similar job seekers and would also likely cause FAAN stock prices to tank as well, making their comp much worse in total too.
Indeed! Also, everyone has a different utility function.
People often evaluate personal risk in terms of money when they really should be evaluating it in terms of utility, which can lead to very different results.
The only situation where that makes sense is if you're not only good at whatever job you have, but you're an expert stock picker and you discover through your superior skill that the one stock with the greatest upside is..... your employer!
The argument against your POV is right in your answer: leaving RSUs as company stock when they vest is no different than a non-employee buying shares of that stock at the vest price.
If instead of getting $X in RSUs you got $X in 'bonus' cash every month would you turn around and put it right into your employer's stock? Probably not.
Regardless of how confident you are in your employer, most people's single biggest investment is their job. Correlating your investments and your regular income is making an incredibly narrow bet which is reckless unless you can see the future.
About seeing the future: one advantage that employees have over investors is the ability to see the future in terms which products are in the pipeline.
One other reason to hold on to stock instead of selling are taxes: in the case of ESPP, holding on for a year (or sometimes more), it can make a huge difference in the case of heavily appreciated stock.
But they can’t see what is in the future pipelines of competitors or other sectors. That’s where diversification comes in. Picking one stock does not work and has never worked. Just because someone is a dev doesn’t mean they can see the future.
Nor can competition see into their competitors pipeline. This is why investments are a bet just like rolling dice in Vegas. A person has to decide their level of risk tolerance which depends on generally where they are at in life (how far/close to retirement) along with unique attributes of their own current financial situation (how much/little debt, how many/few dependencies, how they want to live their life).
It doesn’t matter whether or not an employee can look into the future of a different company: he still has the advantage over others by knowing the roadmap of his own company.
Material knowledge is one reason why the optimal RSU strategy is to set up a 10b5-1 (https://www.investopedia.com/terms/r/rule-10b5-1.asp) election to sell everything as it vests, then to cancel the election right before it triggers if your material insider knowledge tells you that the next quarter is going to beat market expectations.
> If instead of getting $X in RSUs you got $X in 'bonus' cash every month would you turn around and put it right into your employer's stock? Probably not.
Probably is the key word in this statement. There isn't a one size fits all investment strategy so why are we pretending that one exists.
My decisions to invest in the company I work for or my lack of risk aversion could be based on attributes that are unique to my situation and not yours (or others).
> narrow bet which is reckless unless you can see the future.
This is just another way of saying what OP said that I replied to, its not really addressing the point I am making.
For example, what if I have a lump sum of money in the bank so I can afford to make a risky decision like doubling down on my employer. What if I have a dual income house hold and we can afford to do this because even if I lost everything my spouse would account for enough income to cover our expenses. Again, stop prescribing one size fits all advice because investing and finance are extremely diverse because everyones situation is unique.
The way you describe investing "What if I have a dual income house hold and we can afford to do this because even if I lost everything my spouse would account for enough income to cover our expenses" is a lot closer to gambling.
You're going to reply with a chart of the S&P over the last 100 years engaging in the cliche fallacy of thinking that past returns dictate future results.
Gambling is gambling, there are different levels of risk and probabilities you will win or lose but investing is all gambling. Saying its anything else is ignorant of reality.
Let’s say you worked at Enron and did this. You would lose your job and the value of your shares on the same day. There are non zero costs to job switching, especially if there is a huge spike in people suddenly on the job market at the same time, in the same area, with the same skillset and the same employer with a bad reputation.
The only time it really makes sense not to sell an RSU instantly is if there is some extra tax consideration that can be avoided by selling slightly later or some similar benefit.
Let's say you worked at Amazon and did this. You would continue to have a job and your equity value would grow substantially. There are worst and best cases, most fall somewhere in the middle. Your anecdote doesn't really change what I said because my point is some are willing to own more risk than others.
Risk is fine but there is no added reward for taking on extra risk that can be diversified away. In theory anyway - if you know material things the markets do not, this obviously changes.
I’ve held on to half my RSUs and immediately sold the second half over the past 8 years. In my situation, I already have a diversified portfolio. Keeping those RSUs falls within my risk threshold.
That’s incredibly ignorant that without knowing people’s situation, you brush it off as reckless behavior.
The value of one's total compensation fluctuates with stock price appreciation, even if you sell immediately.
Stock grants vest over a period of 4 years, and are targeted to equal a certain dollar value at the time of grant. If your grant is supposed to equal say $80K/year of stock compensation at the time of grant, and then 3 years later the stock has appreciated 3x, then your effective stock compensation when your stock vests, assuming you sell it immediately, is $240K. Combined with salary and what was supposed to be a $200K/year total comp package is now $360K/year.
I'm told (by a mortgage specialist at a Silicon Valley Wells Fargo branch) that the big banks often count stock compensation of big public tech companies as income for the purposes of determining how much mortgage you can afford (because you can always just sell it as it vests), so this increase in average income is absolutely reflected in housing prices.
Oh wow this comment blew up, a bit. Not a regular here so did not see until now. A few additional comments if it matters:
1. Not everyone is a boglehead (well diversified every single minute of life). People do remain married to the company they work for. Even if it is 20% of high earners, it is a big number for bay area.
2. Even if you wanted to be diversified, the lessons of Enron and 2008 are too old for many. So you sell GOOG and invest in ... Netflix? Amazon? Facebook? NVDA? In the leading companies of the past decade, you traded one devil for the other. Even without insider product knowledge, you do not want to move away from your thriving neo-monopolist.
3. People do diversify but in small numbers. It is anecdotal data but people would have a million in vested RSUs and they will diversify only 50K to 100K because the fear of taking wrong decision is too great.
4. Many people do diversify from their RSU into housing. There are people (not me) who own 3, 5, 10 houses. For someone owning 3 houses (bank still owns it, but they have rent > payments), the utility of stock diversification is very small, and the next time they accumulate enough RSUs to buy another house, they do. As someone said, most of the banks have added on RSU specialists to amortize the unvested RSUs over the next 4 years and show that income as income that could be used to qualify.
Of course, this is the outcome of the last 10 years of low interest regime. And of course there are many people who do differently, but believe me there are enough people with 6 figure vested RSUs which apart from their house is the single biggest investment they have and they live(d) lucky : until the recent market hiccups.
It can't keep going up forever. There is enormous demand around $800k which is still significantly higher than the median price of homes of around $500k Houston/Dallas. As supply increases, prices will fall and hopefully people can buy houses finally.
Prop 13 limits the supply of homes available for sale. In Texas if your house value doubles, your property taxes double also. In California (since 1978), they remain the same.
The inventory chart at the top of the article is a bit misleading. It'd be better to use a months supply of inventory chart.
A 100% increase in inventory is equivalent to a -50% decrease in inventory, but they show up out of proportion. It's much easier to increase inventory by 100% if the months of supply is very very low. (e.g. going from 1 month of inventory to 2 months of inventory is a lot less substantial than 2 months to 4 months)
A nearly identical story is playing itself out in Seattle (1). I saw a house drop in price by $150k recently - a year ago you would have had to offer $150k over asking price just to play in the market at all.
It’s slowing in other major markets Dallas (2), Denver (3), and others, although not as severely.
From my perspective as a recent home seller and a prospective home buyer, the turnaround is largely due to the increasing interest rates.
As a seller you suddenly don’t want to risk holding out for the best possible offer because you know the average person might not be able to afford as much soon, and even if that’s questionably accurate, the uncertainty makes you more willing to consider offers.
As a buyer, even a 50 basis points change (half a percent) has a significant effect on what you can afford especially if you’re going to be highly leveraged. You’d be surprised the number of people doing crazy things like 10/10/80 Jumbo loans to get in the market, even in tech.
From both the buyer and seller side there was an insane amount of demand just as rates started going up as people were pushing the limits to get in at the best rates. I suspect this pushed prices up sharply in early 2018, making the following slowdown as rates went up appear more severe than it otherwise would have.
In the Seattle area, taxes are also a minor factor; there’s recently been several significant hikes in property taxes that eat further into affordability - I’m not sure if that’s the case in other markets, but it wouldn’t surprise me.
These offers would be competing against 80-20 offers though. For the past several years in the Bay Area, it's been hard to buy even with an 80-20 because there are other buyers that put more cash down (and sometimes 100% cash).
You can make an offer of 80-20 then do financing with 80-10-10.
Once they accept the offer all they care about is getting their money. Note you still Need to show in your offer letter that you have the cash to do 20% down.
Note an 80-10-10 is both an 80-20 mortgage along with a 10% loan.
Sure you can even do 100% cash and then refinance to 80-10-10. Although in both cases the rate is usually 50 bps higher, and all refinances essentially have a 1 point origination fee (this is often "baked in" so many people think it doesn't exist).
I wonder if some of the downward pressure is the economic slowdown in China. Without foreign tax evaders propping up the market it is unsustainable. You might even see a crash if the situation gets really bad and people are forced to liquidate to cover their losses. We already saw this happen once with the Japanese back in the 80s and 90s.
I believe this is the cause, if you want my speculative hot take. But, to be clear, I feel like I am insanely biased about this viewpoint in particular because I live in Irvine, CA.
The elephant in the room is interest rates. After years of zero rates / QE that's now coming to an end.
Markets have seen it too after many years of going up, and many of the tech workers in the Bay Area are paid in the growth-sensitive (rate-sensitive) shares of their employers. Those shares have come down a fair bit recently, and your marginal buyer might well be a big tech employee.
we started 2018 with a 3.95% for 30 year mortgage, it went all the way up to 4.94% in november. sure, it's declined since then, but only to 4.51% current rate which is still much higher than what we started 2018 at
Wow, how far back does your memory go if you think 4.94% is a "massive high"? Since the modern (post-Bretton Woods) era, mortgages have been above 5% every year until the 2009 crisis, and usually above 7%.
has long term interest rate data from 1790 and rates now are lower than in 88% of other years -- the only other major periods of such low rates was the depression era to WW2 price/rate controls: 1936-1955. Roughly prior to when the Federal reserve gained its independence and was able to set policies apart from federal budget needs.
You are living in a very special period of historically low rates.
The end of this article reads like this is a bad thing.
> These hopes still exist, and at least some of those IPOs will happen this year. While the water is a little ruffled, these are still the boom times in the Bay Area.
It's more like the market comes back to a stable position, stopping the craziness of the last couple of years. It's actually a good thing. I'm in Europe and did not buy an apartment in the last 3 years even though I could have and wanted to. Just waiting for the overpriced square meter prices to fall to a more sustainable level - and if SV takes the first shot, so it might do in the rest of the world.
With a lower principal and higher interest rate, you have the option of paying extra principal before it is required to be paid, resulting in lower amounts paid towards interest.
With higher principal and lower interest rate, you're stuck paying the higher principal no matter what.
Not only that: high interest rate can be re-financed. Some real estate moguls say that its better to buy cheap with exp credit than expensive with cheap credit because of that asymmetry alone.
If you're buying a 15+ year mortgage and haven't budgeted any slack in your monthly payments and you're not expecting any income growth for 15+ years, then you shouldn't be buying the mortgage in my opinion.
This is why such a high rate of homeownership is pernicious. When the costs of TVs, food, or gasoline goes down it’s widely recognized as a good thing. When the costs of housing—a universal necessity—-goes down it’s a national emergency about which something must be done.
> When the costs of TVs, food, or gasoline goes down it’s widely recognized as a good thing. When the costs of housing—a universal necessity—-goes down it’s a national emergency about which something must be done.
Actually, drops in food prices aren't seen as an unmitigated good thing, which is why a number of food prices are subject to price supports.
Just because we send government pork to big farm and all kinds of other regulations around limits on what food can be sold and how doesn't mean they are good ideas. I am open to the possibility, but I severely doubt that lower food prices are actually a bad thing and that whatever market equilibrium we'd have without intervention would be problematic.
Wall street did plenty of bitching and moaning over the oil price declines that happened in the past 5yr and there was not shortage of articles decrying that even though it might look like a good thing from the perspective of someone who has to buy gasoline that it was actually a bad thing for the economy.
SF is too unique to be a canary for the rest of the world I think.
I am in the exact same position as you: had the opportunity to purchase but the pricing is irrational, Im not willing to pay this much for what the market offers.
Known unknown in those areas is the effect of securities-backed loans aka shadow margin. They are not tracked by SEC or margin debt statistics.
Once you have non-retirement financial assets over $100,000, you may get a low interest revolving loan (SBLOC) from the broker that is 50-90% of your portfolio without other restrictions.
Mortgage against the house + SBLOC might combine into very high level of risk. It has been amazing leverage during the decade long stock market boom, but if there is downturn, it can create massive havoc. These loans are subject to a maintenance call asking more collateral with little or no advanced warning.
Bay Area realtors have been aggressively marketing to wealthy Chinese buyers for a while now. The Chinese government has started putting limits on American real estate investment. Given the scale of the high-end market, I’d think that’d be enough to have a measurable effect.
this guy is always writing "everything is a bubble" articles. Ignore him. It's clear that SF real estate is affected by tech stock fortunes, but it's also clear that on average it appreciates roughly on par with stock market. So, if you work and live in bay area, buy a house because you want to live in it, not because you are speculating on real estate. Incidentally, unlike in many other parts of the country, over a long period of time, it is likely to prove a decent investment.
I'm not sure "nothing is a bubble" is the proper reaction to "everything is a bubble". Do you have any rebuttals for the specific data mentioned in the article (surge in housing inventory, price cuts and falling asking prices)?
You are contending there is not a bubble, while the data presented indicates that there is a bubble. I was wondering if you had any data or analysis to back up your "no bubble" assertion or rebut the "bubble" assertion?
Some might mark a distinction between "there is no bubble" and "this author's predictions of when there is a bubble are not reliable or trustworthy". The former is a pretty strong claim, requiring precisely the sort of clear and specific evidence you have wisely and correctly called for.
The latter point suggests that the author should not be taken as authoritative and the evidence they present for their argument is not to be taken seriously. As a side effect, this means that the question at hand - bubble or not - remains unaddressed.
His data is mostly what you mentioned for the last few time intervals on his graphs, plus highlighting things in red when "underlying dynamics" change (conveniently exactly where he wants to make his point). Markets are never monotonic, and the actual fundamentals for strong house prices (employment, tax advantages, etc) probably haven't changed enough for a huge burst. He could be right, but he's more likely wrong.
"But a slew of massive IPOs are being hyped for 2019 – Uber, Palantir, Lyft, Airbnb, and the like – before the Nasdaq craters, thereby shutting the IPO window. "
Well, we did actually enter an official bear market (-20%), or at least really, really close, briefly in late December. And typically the stock markets leads the recession by a year. So, no, bear market and then recession.
Oh, you can blame that on all of us olds that have lived through 3-6 business cycles, yet still have functioning memories and attention spans. The last time, we were presented with data proving that it would never crash. We heard stories about why things were different this time. The time before that, we got data and stories. The time before that, we got data and stories.
Lest you panic and feel sad, we can also tell you that without fail, things will be going well again a few years later, we will have incredible gains in the markets and workforce, and soon after that we will start hearing of record highs in the markets and records lows in the unemployment rate. Such is life in an advanced society.
I still can't think of any time it was announced that global markets would crash and they did actually crash. (I'm at the small limit of that range, with memories of 3 cycles.)
Everything I see points to a crash, but I am not sure a crash is even possible when people expect it.
In my life I have discovered 3 consistent indicators of a market crash. These apply to any given market rather than the market as a whole.
1) People telling you that. "paradigms have shifted", "a new way of doing business," "things are different now," and that fundamentals no longer apply.
2) People telling you that a particular market or investment will only go up. Common sense that this is a safe investment.
3) Average people who don't regularly deal with investments getting in on the game. I.E. if the minimum wage kid from McDonald's is talking about an investment then it is probably a bad sign.
Markets have ups and downs. Always have, always will. Nasdaq will crash again. Some people believe the next is coming in early 2019. Some of them have been around finance for a long time - but that doesn't necessarily mean they actually have any insight.
If you are good with numbers you can take any date in history and make a good solid case that tomorrow things will crash (or crash worse if today was a big crash). Sort of like statistics.
I was just thinking about this last week. My wife has been looking at houses in the bay. Four years ago when we still lived there and we were looking, it seemed like there were very few options available. We ended up leaving the area and moving to Pittsburgh (which has been great), but we're looking at places back in the bay and there seem to be so many more options today.
Yeah, Inventory is up which will hopefully lead to price drops. I've seen a few over the previous months but nothing that's extreme which does make it appear as simply stagnation.
I wonder how much of this is due to number of capable buyers dwindling when prices reach a certain point. There is a good number of people willing to buy a junky 2 bedroom house on the peninsula for $1M. Make that house $1.5M and raise rates a little bit and maybe people just start to say no thank you.
If you want to buy that $1.5M project, you need like $200K for the down payment and fees. Plus, you need the capital to remodel.
Perhaps salaries simply haven't kept up with the rise in home prices?
You also see people moving away because the switching costs become worth it at those prices.
"Would you leave all your friends, family, coworkers, and local knowledge behind for $50K?" is a hard sell. For $500K some people would consider it, but lots more wouldn't. For $1M and suddenly people might be like "Y'know, starting over in a new location is a pain in the ass, but a million bucks is a lot of money." Plus a lot of the big tech companies will let you relocate to satellite offices and keep your job if you've had several years tenure with them.
A house in my neighborhood with extensive, extensive termite damage went pending after its first weekend, for over $2.0 million with multiple offers. My friend and I were discussing strategies for how much to bid, thinking it might go for $1.4 million, and then he could commit cash for a reno, but nope.
There are still a lot of people with a lot of money that want houses in good, safe neighborhoods in good school districts.
The magnet cites (NY, Boston, Vancouver BC, Sili Valley, San Francisco) all have nosebleed housing prices.
Are they sustainable? Or, just maybe, do some of the present owners want to cash out?
As long as people move to magnet cities and are willing to put half their pay into housing, the prices will hold up.
But, somewhere along the way the HR departments at big tech will start hearing, "I'd love to accept your offer but I can't afford to live anywhere near your office." That's when the "fundamentals" (stockbroker lingo) underneath housing prices will start to erode.
The NIMBYism is insane. You have people who own $2M houses ($1.9M of which is capital gains) complaining about gentrification and ruined neighborhood character.
I won't get tired of saying this: SF does not have a nymbism problem as much as a tax structure problem.
The city spends 2600U$S per month household. (11 bil / 360k households). Because the city levies taxes on sales and corporate taxes and business taxes, the ultimate burden of taxes is borne by consumers, workers and business owners.
Thus owning a home is a way to capture the value of all that tax expenditure, possibly with an incredibly reduced prop 13 tax rule. If instead, San Francisco changed its tax structure from corp/sales to land taxes, workers would see their incomes increase, businesses thrive, and real estate residences plummet in value. Think that if every propery had to pay 2600U$S monthly in taxes they would be worth almost nothing.
The most stern nymbism will very desperatly ask developers to nuke his own house if he had to pay that much every month.
While this may be true, I'm not sure this is the calculus that goes through the average NIMBYite's mind. There are a lot of SF nativists that don't own property and are activists against change.
The calculus definitely goes through their mind: if you bought a house 20 years ago, worth 1 million in the market, you might be paying less than 5k a year, while their average tax consumption from the city would be 31k.
Unless they make up the difference with a business, working, or consuming enough to offset with sales taxes, they are 26k+ positive.
I don't, im pretty sure is well below that. But its how much it spends. Precisely, as homeowners are disproportionately voters, the following step would be to restrict goverment spending: who wants to pay 2600 a month for a closed transit station, heroin needles and exporting homeless people.
But now, the homeowner gets a very sweet deal, probably 50k a year in rental per unit he has.
Thats incorrect. Some taxes, like corp taxes, are not borne by investors alone and fall on consumers, but there are taxes that do hit land owners, or investors, etc etc.
> Think that if every propery had to pay 2600U$S monthly in taxes they would be worth almost nothing.
SF has lots of properties that sold at $3 million+ at their last sale, and so would be paying about that in basic property taxes before the 2% annual basis value increase allowed under prop 13, Mello-Roos assessments, etc.
Now,if every housing unit (not property) were assessed a $2600/mo tax, would that drive sale prices down? Maybe. Would it drive up incomes and make businesses thrive? Well, it would increase the income of people living in SF (excluding the homeless) by driving lower income people out even more than the status quo does. But it wouldn't cause incomes for the same people to rise. But, also, that's not a land tax.
What you really seem to want,if you want a land tax, is something like a tax not of $2600 on every property or every housing unit, but on every unit of land area equivalent to the average per-household land footprint of existing housing units. And, sure, that might encourage density, but not the income or business effects you claim.
> Now,if every housing unit (not property) were assessed a $2600/mo tax, would that drive sale prices down? Maybe. Would it drive up incomes and make businesses thrive? Well, it would increase the income of people living in SF (excluding the homeless) by driving lower income people out even more than the status quo does. But it wouldn't cause incomes for the same people to rise. But, also, that's not a land tax.
You are correct, incidence is not the same of property vs land. Land is preferrable becuase the 2mill single family hosuehold that takes the same space than the 5 mill 9 unit apt gets more tax benefits.
You also have the added difficulty that prop taxes are capped. But land taxes aren't. In any case, shifting the burden from consumers, workers and businesses to landlords will inevitable drop the propery values enormously, regardless of the tax scheme implemented. They are today tax-positive. Even if you only do half the tax burden, it would be enough change incentives profoundly.
> You also have the added difficulty that prop taxes are capped. But land taxes aren't.
I don't think California allows local governments to raise land taxes (it allows parcel taxes, that are apportioned on a flat per-parcel basis, but that's obviously not the same as a land tax.)
> In any case, shifting the burden from consumers, workers and businesses to landlords
...won't happen. The consumers and businesses that rent property (and the workers employed by businesses and whose sustainable potential pay is limited by other costs the employer has to pay to operate) will still bear the burden of the taxes, even if they are directly levied on property owners.
I don't know the details, but im sure that if there is a will, there is a way. You can call it a garbage tax, a homeless tax, a hipster tax. The obstacle is political, the same that voted prop 13.
> ..won't happen. The consumers and businesses that rent property (and the workers employed by businesses and whose sustainable potential pay is limited by other costs the employer has to pay to operate) will still bear the burden of the taxes, even if they are directly levied on property owners.
I disagree, this is not what economic theory implies with tax incidence, LVT, etc.
This is an excellent point, and is the Primary reason why we have this housing crisis.
Things like zoning and regulation can theoretically be fixed, if voters wisen up. But the longer this goes on, the more middle class residents will leave the bay area for good. Once the entire middle class is gone, we'll have no hope of ever building cost effective housing (other than automation) because there won't be anymore cost effective labor left to build it with. We're already seeing pretty large inflation on a local level for services: like eating out and plumbing, etc.
Yup. I've always found it so bizarre that NIMBYs feel entitled to a neighborhood that remains exactly as it was when they bought their home. Is it reasonable to expect a 10 year old car to operate the same as the day you bought it?
It's especially absurd since we're talking about a global, dynamic city, not some small rural town. Can you imagine if 1900s NYC had the NIMBY culture of present day SF? It would've severely choked its growth.
SF's saving grace is its VC ecosystem and network effect between existing talent. You can barely even say they have a monopoly on talent pool, since the ivy leagues and many other top schools are nowhere near SF. These factors are gradually growing in other cities, and the bay area will get to a point where the cost of living will turn it into just another city. They've essentially created one of the worlds largest funnels of money into landlords pockets. So much wasted capital.
This isn't like the finance stronghold in NY or entertainment in LA, tech companies are involved in every industry, and don't need to be in SF to thrive.
>SF's saving grace is its VC ecosystem and network effect between existing talent.
And pretty much perfect year long weather matched with world class outdoor activities within driving distance. I don't think the cost of housing in the Bay Area is going down anytime soon. People figured out it's a desirable place to live and are willing to spend more to live there.
The bay area is a vast driving horror. I laugh when I see people say the word NIMBY because it's like let's double or triple the number of cars on the road here! Then you all claim these new people are going to live next to their grocery store and workplace and won't own a car. Oh dear. If you can't even control the nimbys what makes you think you can enforce that?
It is interesting to see the dichotomy here, and sad. I suspect that some neighbors never saved enough for retirement and so having their home "worth" a million dollars over what they paid for it is what they are counting on to live on in their retirement. So they are highly motivated to have house prices stay high, while people who are looking to buy their first home are looking for affordable options.
Sunnyvale at least has been doing a good job of adding housing in spite of the NIMBYism. It isn't a popular opinion on Nextdoor but every fora has its taboos.
>Some people seem to think every place should be equally affordable to everyone and I do not understand that. Perhaps you can explain
Is there something obvious I'm missing here? This seems to be a salient point. Why should it cost the same to live by the beach in California vs. being in a rural area in Wyoming?
The market is unlikely to shift that much in a month and prices are still near an all-time high. It might be more difficult to get it to sell, but that doesn't make it a bad time. If the real-estate market does take a real downturn and the economy follows, it may take 5-10 years to regain its current value.
The funny thing is, we aren’t obsessed with maximizing value so it should be interesting. If there was a model for limit orders in real estate we’d just set a limit or a buy-it-now price just to get the process over with. The whole real estate industry is a messy dance.
The last cycle of the valley startups intended to disrupt this stuff - Zillow, zipreality, Redfin - seems to have quickly been co-opted into the traditional model.
I agree with your observations. The startups have given us new tools and maybe lowered reduced the cost of commissions, but it's still real estate people doing real estate things.
If you're not worried about maximizing value overmuch, I wager that demand will be sufficiently high in a month that you can complete a quick sale if your house is priced at the market rate.
Sellers in the bay area are accustomed to pricing houses 20% above market and still seeing a bidding war that includes cash offers. I'm guessing that the houses sitting on the market have sellers that are unwilling to let go of them without getting a big profit.
Lots of people can only afford a house in the bay area because of their RSUs. With the stock market slowing down, it seems normal to see housing cooling down. Now, add the new tax laws which impact a lot of residents of California (capped mortgage interest deduction) and interest rates going up, it only makes sense that the next phase is prices going down. And I'm certainly biased, I just bought a house in Sunnyvale 6 months ago, which seems to be around peak market.
I live about 15-20 mins away from Apple and Netflix. The house next to ours has been empty for more than 2 years (as long as we lived in the neighborhood). Once a year, a Chinese lady (other neighbors say she lives in China now) appears in it for a day or two. The house is not for sale or rent and its estimate is over 1.5M.
The other part of that story is that due to Prop 13, you have old ladies living in 5 bedroom houses by themselves because if they downsize, their tax basis gets recalculated. So they might pay $5k per year on that big, expensive house but they might end up with $10k per year if they move to a much cheaper house directly next door.
Stories I’ve heard are more like $3-5k on that big house they inherited changes to $20-30k on that down-sized house they moved into — that is, a 4x-10x increase, not just 2x.
What shocks me most is when I hear this story and learn that the downsizers (not always old) is shocked by their tax bill — they don’t know about prop 13 and no one told them!
California homeowners 55 and older can get a one-time opportunity to sell their primary residence and transfer the property tax assessment to a new home under Proposition 60. The caveat here is the market value of the new house generally must be lower or equal to the home being sold. For married couples, only one spouse must be 55 or older.
I don't see how this is a good investment for them. Keeping it empty means, they're loosing 1.3% + the cost of maintenance, HOA, and insurance (1.6% total) every year. And since we're towards the top of the 12 year micro bubble, the long term appreciation won't be significantly more than inflation.
You have to remember, the % increase in housing inventory was already extroadinarily low. So if that tiny number doubles, it's not as big of a change as you might imagine.
The same applies to many inelastic markets with bimodal (or otherwise "lumpy") distributions. When the supply falls below demand from the highest tiers only, there's a sudden sharp spike in price, as all the lower tiers are priced out of the market entirely. The market-clearing price becomes what the higher-paying buyers are willing & able to pay, because there's not enough product to service the lower-paying mass market anyway and so no incentive to price affordably for them.
You see this most dramatically with startups. A single engineer might go for $200K/year. If that single engineer founds a startup that develops a commanding lead in a market that suddenly becomes interesting to a big company, they can fetch billions. Why? Because now instead of there being one Yahoo and 30,000 Jan Koums, there is one WhatsApp and some very deep-pocketed Googles/Facebooks/Yahoos.
It applies to other markets like gasoline, therapists, health care, etc. too. When demand exceeds supply, all the "excess" demand simply has to go without, and the market-clearing price rises to the maximum that the marginal customer can pay.
Someone probably expressed this idea, but why why why tech companies stay in SF area ? Their operations do not depend on being local to SF. It looks like the tech sector is the single driver of the SF economy. Everyone is quick to blame regulations or residents who support these regulations, but why not to press tech giants to move, even gradually, their operations elsewhere, or distribute it across the whole state/country/world, starting from depressed areas with no jobs.
Putting aside any theories around the "Cult of Silicon Valley", the typical answer I get when I ask others that same question is that "tech" companies group in these areas, especially SF, because it makes it easier to get the best talent; since everyone already lives in the same area, there's hypothetically no moving expenses that would stop candidates from accepting a job, especially when it comes to candidates with families.
Personally, I don't completely buy that explanation, and think there's an unspoken cult-like quality to the tech scene of SF/SV that confines it to a few cramped spaces in the country. Big "tech" still represents the modern form of the American Dream and the Gold Rush to countless people, and San Francisco is symbolic of that idealism in and of itself. Making six figures and living in the outskirts working for a company nobody's heard of isn't as cool as working for Unicorn X in Mountain View, CA.
I would take a 20% pay cut to be able to live somewhere like the Bay Area with its coastal scenery and perfect weather. But as it is, I'd need to triple my salary to be able to afford to live there.
employees don't have enough bargaining power to push wages up, so FAANGS only need to pay a 50% premium for wages, relative to other parts of the country. The decision makers who decide where people work would rather have the convenience of not getting on an airplane than saving 50% on Labor cost.
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[ 2.4 ms ] story [ 213 ms ] threadThe weather is a shock to lots of people.
I just sold my house in Seattle and will be leaving next month.
Despite that, it is having an unprecedented net population boom.
Over half of my bay area friends now live in Portland. I left the bay myself (for a new country), but not due to housing costs.
Eventually, making it a rotten place to live for anyone who's not a millionaire had to catch up to it.
Seattle, Portland, Austin, Denver, etc would do well to heed the warning. I'm sure they won't though because "mo' money, mo' problems" is a lesson cities haven't learned yet and there's no reason for them to learn it now.
As far as SF - everyone there seems to think they will never lose money on real estate and it will pick back up within a year or two whenever it drops.
SF was weird to me - I expected it to be a huge city, and it's this town with a cool bridge, expensive park, a bunch of overpriced houses, and a scooter app which gives you a distinct map of the "bad" neighborhoods.
"The study found that two-thirds of all sales of detached houses in the University Endowment Lands, Dunbar and Point Grey neighbourhoods were purchased by buyers with non-anglicized Chinese names. That group purchased 88 per cent of houses priced at more than $5-million."
https://www.theglobeandmail.com/news/british-columbia/vancou...
https://www.macleans.ca/economy/realestateeconomy/andy-yan-t...
https://globalnews.ca/news/4658157/fentanyl-vancouver-real-e...
Last week, one nicer 4BR house sold for 20% less than a smaller 3BR house that sold in April for a ridiculous $2.4M (that then underwent major remodeling for 6 months.)
Now look at the stock price of those companies between then and now, and the increased interest rate.
AFAICS this has not to do with foreign investments unwinding or people moving out of CA, but houses having become too expensive compared to what people could afford earlier with a mix of increased fear and uncertainty thrown in.
It’s not a bet that I would make at today’s prices, so I’m surprised that a hedge fund would still do it.
I think the real issue is that we let market forces determine housing prices and housing strategy. Housing is, like medicine, something that is poorly served by markets - since markets distort basic resources away from the common good.
It depends on the amount of risk and diversification you are looking for as well as where you are in your financial career. For example, if you have no college debt, and can afford to live off of your salary alone, leaving RSUs as company stock when they vest is no different than a non-employee buying shares of that stock at the vest price.
Diversification is great but not everyone is in the same financial situation to assume there is a one size fits all rule.
Wrong - if an employee holds stock in the company they work for, they are doubly screwed when things turn for the worse at the company. They lose asset value, and they may lose their job. Its a lousy idea to hold more than a trivial amount of stock in the company that employs you.
The chance of a dev getting the same job with the same comp is suddenly much lower, and will be like that for years, especially if said dev is looking for another job in the Mountain View area.
Google crashing would flood the market with very similar job seekers and would also likely cause FAAN stock prices to tank as well, making their comp much worse in total too.
Sell your RSUs people! :)
People often evaluate personal risk in terms of money when they really should be evaluating it in terms of utility, which can lead to very different results.
The only situation where that makes sense is if you're not only good at whatever job you have, but you're an expert stock picker and you discover through your superior skill that the one stock with the greatest upside is..... your employer!
The argument against your POV is right in your answer: leaving RSUs as company stock when they vest is no different than a non-employee buying shares of that stock at the vest price.
If instead of getting $X in RSUs you got $X in 'bonus' cash every month would you turn around and put it right into your employer's stock? Probably not.
Regardless of how confident you are in your employer, most people's single biggest investment is their job. Correlating your investments and your regular income is making an incredibly narrow bet which is reckless unless you can see the future.
One other reason to hold on to stock instead of selling are taxes: in the case of ESPP, holding on for a year (or sometimes more), it can make a huge difference in the case of heavily appreciated stock.
Completely legal but obviously ethically dubious.
It’s simply undeniable that employees know more than others.
And it’s unrealistic to think that none of knowledge would ever be helpful to better predict the stock price.
For a stock with lots of appreciation, the real bonus is in the stock price appreciation in the 2 year during which the price is locked in.
That part gets taxed at capital gains if you hold the stock long enough.
https://www.mystockoptions.com/content/how-long-must-i-hold-...
Probably is the key word in this statement. There isn't a one size fits all investment strategy so why are we pretending that one exists.
My decisions to invest in the company I work for or my lack of risk aversion could be based on attributes that are unique to my situation and not yours (or others).
> narrow bet which is reckless unless you can see the future.
This is just another way of saying what OP said that I replied to, its not really addressing the point I am making.
For example, what if I have a lump sum of money in the bank so I can afford to make a risky decision like doubling down on my employer. What if I have a dual income house hold and we can afford to do this because even if I lost everything my spouse would account for enough income to cover our expenses. Again, stop prescribing one size fits all advice because investing and finance are extremely diverse because everyones situation is unique.
They are two very different things.
You're going to reply with a chart of the S&P over the last 100 years engaging in the cliche fallacy of thinking that past returns dictate future results.
The only time it really makes sense not to sell an RSU instantly is if there is some extra tax consideration that can be avoided by selling slightly later or some similar benefit.
That’s incredibly ignorant that without knowing people’s situation, you brush it off as reckless behavior.
This might be the case that OP is thinking about.
But if then the stock goes down, you simply decide to not buy a house at that price.
I definitely don’t sell my ESPP shares when I get them, mostly for tax reasons.
Stock grants vest over a period of 4 years, and are targeted to equal a certain dollar value at the time of grant. If your grant is supposed to equal say $80K/year of stock compensation at the time of grant, and then 3 years later the stock has appreciated 3x, then your effective stock compensation when your stock vests, assuming you sell it immediately, is $240K. Combined with salary and what was supposed to be a $200K/year total comp package is now $360K/year.
I'm told (by a mortgage specialist at a Silicon Valley Wells Fargo branch) that the big banks often count stock compensation of big public tech companies as income for the purposes of determining how much mortgage you can afford (because you can always just sell it as it vests), so this increase in average income is absolutely reflected in housing prices.
1. Not everyone is a boglehead (well diversified every single minute of life). People do remain married to the company they work for. Even if it is 20% of high earners, it is a big number for bay area.
2. Even if you wanted to be diversified, the lessons of Enron and 2008 are too old for many. So you sell GOOG and invest in ... Netflix? Amazon? Facebook? NVDA? In the leading companies of the past decade, you traded one devil for the other. Even without insider product knowledge, you do not want to move away from your thriving neo-monopolist.
3. People do diversify but in small numbers. It is anecdotal data but people would have a million in vested RSUs and they will diversify only 50K to 100K because the fear of taking wrong decision is too great.
4. Many people do diversify from their RSU into housing. There are people (not me) who own 3, 5, 10 houses. For someone owning 3 houses (bank still owns it, but they have rent > payments), the utility of stock diversification is very small, and the next time they accumulate enough RSUs to buy another house, they do. As someone said, most of the banks have added on RSU specialists to amortize the unvested RSUs over the next 4 years and show that income as income that could be used to qualify.
Of course, this is the outcome of the last 10 years of low interest regime. And of course there are many people who do differently, but believe me there are enough people with 6 figure vested RSUs which apart from their house is the single biggest investment they have and they live(d) lucky : until the recent market hiccups.
https://www.zillow.com/dallas-tx/home-values/
Even if you restrict yourself to the nicer northern suburbs, that's still way off:
https://www.zillow.com/plano-tx/home-values/
It’s slowing in other major markets Dallas (2), Denver (3), and others, although not as severely.
From my perspective as a recent home seller and a prospective home buyer, the turnaround is largely due to the increasing interest rates.
As a seller you suddenly don’t want to risk holding out for the best possible offer because you know the average person might not be able to afford as much soon, and even if that’s questionably accurate, the uncertainty makes you more willing to consider offers.
As a buyer, even a 50 basis points change (half a percent) has a significant effect on what you can afford especially if you’re going to be highly leveraged. You’d be surprised the number of people doing crazy things like 10/10/80 Jumbo loans to get in the market, even in tech.
From both the buyer and seller side there was an insane amount of demand just as rates started going up as people were pushing the limits to get in at the best rates. I suspect this pushed prices up sharply in early 2018, making the following slowdown as rates went up appear more severe than it otherwise would have.
In the Seattle area, taxes are also a minor factor; there’s recently been several significant hikes in property taxes that eat further into affordability - I’m not sure if that’s the case in other markets, but it wouldn’t surprise me.
1. https://seattlebubble.com/blog/2019/01/07/nwmls-home-price-g...
2. https://www.wsj.com/articles/the-u-s-housing-boom-is-coming-...
3. https://www.denverpost.com/2018/12/26/home-price-increases-s...
Put the other 10% down in a diversified stock portfolio over 10 years would likely fetch > 4.5% apr.
Once they accept the offer all they care about is getting their money. Note you still Need to show in your offer letter that you have the cash to do 20% down.
Note an 80-10-10 is both an 80-20 mortgage along with a 10% loan.
Markets have seen it too after many years of going up, and many of the tech workers in the Bay Area are paid in the growth-sensitive (rate-sensitive) shares of their employers. Those shares have come down a fair bit recently, and your marginal buyer might well be a big tech employee.
we started 2018 with a 3.95% for 30 year mortgage, it went all the way up to 4.94% in november. sure, it's declined since then, but only to 4.51% current rate which is still much higher than what we started 2018 at
https://fred.stlouisfed.org/series/MORTGAGE30US
Going back even further, Measuring Worth https://www.measuringworth.com/datasets/interestrates/
has long term interest rate data from 1790 and rates now are lower than in 88% of other years -- the only other major periods of such low rates was the depression era to WW2 price/rate controls: 1936-1955. Roughly prior to when the Federal reserve gained its independence and was able to set policies apart from federal budget needs.
You are living in a very special period of historically low rates.
> These hopes still exist, and at least some of those IPOs will happen this year. While the water is a little ruffled, these are still the boom times in the Bay Area.
It's more like the market comes back to a stable position, stopping the craziness of the last couple of years. It's actually a good thing. I'm in Europe and did not buy an apartment in the last 3 years even though I could have and wanted to. Just waiting for the overpriced square meter prices to fall to a more sustainable level - and if SV takes the first shot, so it might do in the rest of the world.
With higher principal and lower interest rate, you're stuck paying the higher principal no matter what.
I dont think that many people do.. (beside us here)
Actually, drops in food prices aren't seen as an unmitigated good thing, which is why a number of food prices are subject to price supports.
Once you have non-retirement financial assets over $100,000, you may get a low interest revolving loan (SBLOC) from the broker that is 50-90% of your portfolio without other restrictions.
Mortgage against the house + SBLOC might combine into very high level of risk. It has been amazing leverage during the decade long stock market boom, but if there is downturn, it can create massive havoc. These loans are subject to a maintenance call asking more collateral with little or no advanced warning.
Edit: “Bay Area” not “Baby Area” :)
Not sure if this was intentional but makes for a great reference to SV's apparent ageism.
Some might mark a distinction between "there is no bubble" and "this author's predictions of when there is a bubble are not reliable or trustworthy". The former is a pretty strong claim, requiring precisely the sort of clear and specific evidence you have wisely and correctly called for.
The latter point suggests that the author should not be taken as authoritative and the evidence they present for their argument is not to be taken seriously. As a side effect, this means that the question at hand - bubble or not - remains unaddressed.
Why do we expect Nasdaq to crater?
The only way we will know is by waiting and seeing.
Oh, you can blame that on all of us olds that have lived through 3-6 business cycles, yet still have functioning memories and attention spans. The last time, we were presented with data proving that it would never crash. We heard stories about why things were different this time. The time before that, we got data and stories. The time before that, we got data and stories.
Lest you panic and feel sad, we can also tell you that without fail, things will be going well again a few years later, we will have incredible gains in the markets and workforce, and soon after that we will start hearing of record highs in the markets and records lows in the unemployment rate. Such is life in an advanced society.
Everything I see points to a crash, but I am not sure a crash is even possible when people expect it.
1) People telling you that. "paradigms have shifted", "a new way of doing business," "things are different now," and that fundamentals no longer apply.
2) People telling you that a particular market or investment will only go up. Common sense that this is a safe investment.
3) Average people who don't regularly deal with investments getting in on the game. I.E. if the minimum wage kid from McDonald's is talking about an investment then it is probably a bad sign.
If you are good with numbers you can take any date in history and make a good solid case that tomorrow things will crash (or crash worse if today was a big crash). Sort of like statistics.
If you want to buy that $1.5M project, you need like $200K for the down payment and fees. Plus, you need the capital to remodel.
Perhaps salaries simply haven't kept up with the rise in home prices?
I honestly think a lot of buyers have paused into a “wait and see” mode.
"Would you leave all your friends, family, coworkers, and local knowledge behind for $50K?" is a hard sell. For $500K some people would consider it, but lots more wouldn't. For $1M and suddenly people might be like "Y'know, starting over in a new location is a pain in the ass, but a million bucks is a lot of money." Plus a lot of the big tech companies will let you relocate to satellite offices and keep your job if you've had several years tenure with them.
A house in my neighborhood with extensive, extensive termite damage went pending after its first weekend, for over $2.0 million with multiple offers. My friend and I were discussing strategies for how much to bid, thinking it might go for $1.4 million, and then he could commit cash for a reno, but nope.
There are still a lot of people with a lot of money that want houses in good, safe neighborhoods in good school districts.
Are they sustainable? Or, just maybe, do some of the present owners want to cash out?
As long as people move to magnet cities and are willing to put half their pay into housing, the prices will hold up.
But, somewhere along the way the HR departments at big tech will start hearing, "I'd love to accept your offer but I can't afford to live anywhere near your office." That's when the "fundamentals" (stockbroker lingo) underneath housing prices will start to erode.
The NIMBYism is insane. You have people who own $2M houses ($1.9M of which is capital gains) complaining about gentrification and ruined neighborhood character.
The city spends 2600U$S per month household. (11 bil / 360k households). Because the city levies taxes on sales and corporate taxes and business taxes, the ultimate burden of taxes is borne by consumers, workers and business owners.
Thus owning a home is a way to capture the value of all that tax expenditure, possibly with an incredibly reduced prop 13 tax rule. If instead, San Francisco changed its tax structure from corp/sales to land taxes, workers would see their incomes increase, businesses thrive, and real estate residences plummet in value. Think that if every propery had to pay 2600U$S monthly in taxes they would be worth almost nothing.
The most stern nymbism will very desperatly ask developers to nuke his own house if he had to pay that much every month.
Unless they make up the difference with a business, working, or consuming enough to offset with sales taxes, they are 26k+ positive.
But now, the homeowner gets a very sweet deal, probably 50k a year in rental per unit he has.
That's it. All taxes are borne by consumers.
https://www.youtube.com/watch?v=hPp3u4Jrdmw "Corporations don't pay taxes, they collect taxes..."
The concept is called tax inciddence.
SF has lots of properties that sold at $3 million+ at their last sale, and so would be paying about that in basic property taxes before the 2% annual basis value increase allowed under prop 13, Mello-Roos assessments, etc.
Now,if every housing unit (not property) were assessed a $2600/mo tax, would that drive sale prices down? Maybe. Would it drive up incomes and make businesses thrive? Well, it would increase the income of people living in SF (excluding the homeless) by driving lower income people out even more than the status quo does. But it wouldn't cause incomes for the same people to rise. But, also, that's not a land tax.
What you really seem to want,if you want a land tax, is something like a tax not of $2600 on every property or every housing unit, but on every unit of land area equivalent to the average per-household land footprint of existing housing units. And, sure, that might encourage density, but not the income or business effects you claim.
You are correct, incidence is not the same of property vs land. Land is preferrable becuase the 2mill single family hosuehold that takes the same space than the 5 mill 9 unit apt gets more tax benefits.
You also have the added difficulty that prop taxes are capped. But land taxes aren't. In any case, shifting the burden from consumers, workers and businesses to landlords will inevitable drop the propery values enormously, regardless of the tax scheme implemented. They are today tax-positive. Even if you only do half the tax burden, it would be enough change incentives profoundly.
I don't think California allows local governments to raise land taxes (it allows parcel taxes, that are apportioned on a flat per-parcel basis, but that's obviously not the same as a land tax.)
> In any case, shifting the burden from consumers, workers and businesses to landlords
...won't happen. The consumers and businesses that rent property (and the workers employed by businesses and whose sustainable potential pay is limited by other costs the employer has to pay to operate) will still bear the burden of the taxes, even if they are directly levied on property owners.
> ..won't happen. The consumers and businesses that rent property (and the workers employed by businesses and whose sustainable potential pay is limited by other costs the employer has to pay to operate) will still bear the burden of the taxes, even if they are directly levied on property owners.
I disagree, this is not what economic theory implies with tax incidence, LVT, etc.
Things like zoning and regulation can theoretically be fixed, if voters wisen up. But the longer this goes on, the more middle class residents will leave the bay area for good. Once the entire middle class is gone, we'll have no hope of ever building cost effective housing (other than automation) because there won't be anymore cost effective labor left to build it with. We're already seeing pretty large inflation on a local level for services: like eating out and plumbing, etc.
It's especially absurd since we're talking about a global, dynamic city, not some small rural town. Can you imagine if 1900s NYC had the NIMBY culture of present day SF? It would've severely choked its growth.
SF's saving grace is its VC ecosystem and network effect between existing talent. You can barely even say they have a monopoly on talent pool, since the ivy leagues and many other top schools are nowhere near SF. These factors are gradually growing in other cities, and the bay area will get to a point where the cost of living will turn it into just another city. They've essentially created one of the worlds largest funnels of money into landlords pockets. So much wasted capital.
This isn't like the finance stronghold in NY or entertainment in LA, tech companies are involved in every industry, and don't need to be in SF to thrive.
Poor choice of analogy, with proper maintenance this is perfectly reasonable and fairly trivial to achieve.
Hotels -> AirBnb
Taxis -> Uber/Lyft
Automobiles -> Tesla
Video distribution -> Netflix
Tech in the Bay Area is expanding its footprint, not reducing it.
And pretty much perfect year long weather matched with world class outdoor activities within driving distance. I don't think the cost of housing in the Bay Area is going down anytime soon. People figured out it's a desirable place to live and are willing to spend more to live there.
Sunnyvale at least has been doing a good job of adding housing in spite of the NIMBYism. It isn't a popular opinion on Nextdoor but every fora has its taboos.
Is there something obvious I'm missing here? This seems to be a salient point. Why should it cost the same to live by the beach in California vs. being in a rural area in Wyoming?
Now it seems like we might be better off holding in to it and renting it out.
The funny thing is, we aren’t obsessed with maximizing value so it should be interesting. If there was a model for limit orders in real estate we’d just set a limit or a buy-it-now price just to get the process over with. The whole real estate industry is a messy dance.
The last cycle of the valley startups intended to disrupt this stuff - Zillow, zipreality, Redfin - seems to have quickly been co-opted into the traditional model.
If you're not worried about maximizing value overmuch, I wager that demand will be sufficiently high in a month that you can complete a quick sale if your house is priced at the market rate.
Sellers in the bay area are accustomed to pricing houses 20% above market and still seeing a bidding war that includes cash offers. I'm guessing that the houses sitting on the market have sellers that are unwilling to let go of them without getting a big profit.
Ever?
What shocks me most is when I hear this story and learn that the downsizers (not always old) is shocked by their tax bill — they don’t know about prop 13 and no one told them!
Prop 5 would have applied statewide and would have freed up thousands of such homes in the Bay Area.
The tl;dr is that as soon as demand exceeds supply, prices shoot up to the average software engineers can afford.
You see this most dramatically with startups. A single engineer might go for $200K/year. If that single engineer founds a startup that develops a commanding lead in a market that suddenly becomes interesting to a big company, they can fetch billions. Why? Because now instead of there being one Yahoo and 30,000 Jan Koums, there is one WhatsApp and some very deep-pocketed Googles/Facebooks/Yahoos.
It applies to other markets like gasoline, therapists, health care, etc. too. When demand exceeds supply, all the "excess" demand simply has to go without, and the market-clearing price rises to the maximum that the marginal customer can pay.
If their calculation is to stay and even expand in the Bay Area, it would be best to understand why (concentration of talent? network effects? etc?).
Personally, I don't completely buy that explanation, and think there's an unspoken cult-like quality to the tech scene of SF/SV that confines it to a few cramped spaces in the country. Big "tech" still represents the modern form of the American Dream and the Gold Rush to countless people, and San Francisco is symbolic of that idealism in and of itself. Making six figures and living in the outskirts working for a company nobody's heard of isn't as cool as working for Unicorn X in Mountain View, CA.