As a resident who was born here and left and then came back, I’ve had this idea kicking around in my head of “California is a luxury product”.
If you look at the entire US, and assume you have the ability to move and live in any state, there are lots of options for everyone at every income level. (Disclaimer that this doesn’t address poverty, DEI, and other limitations to a good chunk of citizens).
From the Gold Rush, to Hollywood, to East Coasters moving to health spas like Carlsbad or Calistoga, some moved here for necessity but many out of choice and luxury.
A lot more to unpack here but I think it’s interesting.
As I kid who lived outside the US a couple of times and would boomerang back, I feel that way about the whole country. We have something like 8.8% of our population as millionaires so like 22M people. And I never have to hire guards for routine travel trips.
It's a terrible luxury product though because 1) Prop 13 means that people from 50 years ago are still in the luxury neighborhoods 2) Crime is not sufficiently eradicated even from expensive areas
This KIND of thing however is extremely common in poverty stricken areas. Poor areas are crime ridden, because most people in poverty lack other choices, and very few people will choose to just lay down and die quietly like some people seem to think they should.
Look at mcdonalds in detroit and stuff like that, they look like banks inside, with bulletproof plastic panels between customers and staff. Californian elitists just get pissy that they have to see it in their back yard, because they want the suffering required to support their profits to be out of sight and out of mind.
People bitch and moan that "california already spends a shitload on homelessness" but like, it's california, even the small office you have to have just for a social worker to have a laptop to keep things organized will cost millions a year. If you want to function somewhere that has a land cost ten times anywhere else, you are going to have to pay more. Period. The janitors need to live there too.
Just to put a dose of reality here, Prop 13 property taxes reset on sales (there are exceptions when selling to children of the owners but generally they reset) and property turnover rates in California are generally in excess of 10%. What that means is that pretty much all of the taxes are reset every 10 years or so. This is more true of "desirable" places to live (Bay Area, LA, San Diego) than say "less desirable". I have encouraged (without success so far) the County Assessor's office to publish the "net" tax year (average, median, and mode) for the county to help people better understand this.
It seems like around 2/3 of the base would be reset in 10 years, if each house has an equal, random chance to be sold. I think the reality is smaller homes change hands more often and larger homes less often, meaning the chance that a larger home changes hands in a given decade could easily be less than half.
(And naturally, the longer a house is held, the longer it’s likely to be held, even without Prop 13, but Prop 13 makes it a stronger sticky force.)
>> Prop 13 property taxes reset on sales ... and property turnover rates in California are generally in excess of 10%. What that means is that pretty much all of the taxes are reset every 10 years or so
That would be assuming certain things, among which would be that if 10% of properties sell every year, there is a consistent 10% chance of a given property selling each year.
What I can tell you from looking at the data on all the houses in the neighborhood in which we bought our home in 2019 is that the vast majority of them had been last purchased more than 20 years earlier (and quite a few more than 30).
Given the significant economic incentives created by Prop 13, houses in appreciating areas should be less likely to turn over than ones in areas where values are relatively stable.
In some (or all?) counties, if you move to another house in the same county you can keep your original tax base.
Transferring a Principal Residence Value within a County
“Proposition 60 (Revenue and Taxation Code 69.5)
Property owners of at least 55 years of age may transfer the base year value of their principal residence to a replacement principal residence. The replacement must be of equal or lesser current market value and located within the same county. Sacramento County does not allow base year transfers from other counties.”
My point here folks is this is a knowable number if you want to know it. Just spend some time at the County seat and look at the public records for home sales. If you know a realtor you can pull MLS data and if you do some data science on it you can draw heat maps of neighborhoods where turnover is more rapid and those where it is less. Do a bit of legwork. I'll tell you that the retiree living in a home they have had for 50 years is an outlier, but encourage folks to go to the primary sources themselves, don't take my word for it.
If you have a property that's owned by your corporation, you can "sell" the property by transferring your company ownership to another holding corporation (slowly by changing the BoD over time). The property deed doesn't change hands; no prop13 trigger.
This is how all the rich people avoid prop13 taxation.
Yes you can. I re-iterate that county tax records in the US (California for sure) are public records and you can go to the county clerk's office and get copies of them. In CA it is often "free" to view them at the office but costs money to have copies made. So spend some time and find out what everyone is paying in property taxes.
If you do this in a "wealthy" area, you will find a lot of properties are held in living trusts (because probate), a lot will be in individual names, and a few will be own by LLCs. The latter are typically rentals (rather than rich people avoiding taxes, they are avoiding lawsuits from their tenants). As of 2023, if you aren't careful[1] the LLC rentals will lose their tax basis when they are inherited.
If you were working for Redfin or Zillow you could probably pull this out of data you had on your servers because the companies have paid the counties for copies of all the records.
[1] Where careful here is having created the LLC organizing document (or amended it) to allow for the transfer of majority ownership without triggering a sale. See this link for the current hoops -- https://www.kaidenelderlaw.com/blog/2023/march/can-an-llc-he...
I refer to this idea as making our own inflation. We such stratified groups of spending so that if you want to spend $100 1980 dollars on a pair a jeans you can find that price range. If you never want to spend more than $20 on pants that is possible also.
For all but the most constrained the same product category(inherent quality differences may or maynot exist) is available at any price point.
Harsh winters and humid summers are quite miserable. People are less likely to want to go out, certain businesses are closed, specific activities are not possible, etc.
The amount of “nice days” you get in CA is much greater than elsewhere in the US.
With California out of the picture, people are considering other areas that have decent weather and these areas are also getting more expensive. I won't say it so more people don't come here, but there are other places in the US with mild weather (of course not as mild as California's, but still pretty good) :).
That’s one of the hardest things about leaving California as a lifelong Californian who is accustomed to Mediterranean climates: there’s nowhere else in the United States with this type of climate. It’s generally your choice of cold winters (much of the northern US), very humid summers (the South and the East Coast), or a very long rainy season (the Pacific Northwest). Even the weather of California’s Central Valley, which has hot, dry summers, is a vast improvement over much of the rest of the country.
It’s not that I can’t deal with the weather; I dream of living in the Tokyo area again despite its brutally hot and humid summers. But it’s going to be difficult giving up a Mediterranean climate.
They moved to CA in the 1840s to seek to get rich, not because they were already rich.
People moved to CA to try to make it big in movies or music, although most failed, they still lived a pretty good lifestyle throughout most of the 20th century. Not because they were already Brad Pitt or Madonna.
People moved to Silicon Valley, initially just to get jobs at a burgeoning semiconductor industry a few decades ago. Then later to start up companies in personal computing or internet businesses. Not because they were already Steve Jobs or Jeff Bezos. Although most people never got that level of success, there was still a pretty good lifestyle available to young adults in the valley throughout most of the late 20th century.
Most people throughout California's history moved there for opportunity not as a luxury.
For sure, it’s always been a blend of both but you’d have to agree there was more of it than those moving to other parts of the Western US, which impacted many things downstream.
And the question is more about whether it’s currently primarily a luxury option as a headline idea, with a thousand different caveats.
It reminds me of cost of a minor league baseball game ticket, which is several times cheaper than a major league game. Of course the major league game is "better", but is it really 500% better? The seats, the game, pitching speeds, the hot dogs, beer, etc. are all the same. California is better than most places in the US, but probably not worth the financial hardship that people need to suffer to live there.
I loved living in the Bay Area, but I always thought it would be funny if a new company that was on track to reach FANG-level status required investors to move elsewhere to a mid-size or smaller city (as their primary residence) as a condition to invest in them. This is mandated all the time for employees, particularly with the RTO effort, and I would be quite interested to see which wins out among the psychology of the ultra-wealthy: remain in the Bay Area or move elsewhere to gain even more wealth.
A company that is on track to reach even remotely close to FANG status has already taken on significant investments. From, by necessity, many investors in the Bay Area.
That means the board wouldn't put requirements on investors, and they'd reign in any attempt by the CEO to do so. Even if the idea of restricting investors by location wasn't incredibly bad business in the first place.
You're also forgetting that money makes residence meaningless. If you are indeed in the "ultra wealthy" class, you have a residence in wherever is most advantageous to you, and other pads to hang in. Your investments will happen through companies located wherever is most advantageous to you as well. Need a new location, spin up an extra company.
It's an interesting thought experiment, but it seriously misjudges the balance of power between folks having money and those possibly generating money at a later point.
I grew in upper middle class southern California. I work in tech for the last 7 years.
My parents house went from $500K when they bought in 1995 to +$3M today. If my math is right, that would mean the all-in payment (principal, interest, taxes) would be around $20,000/month at today's rate. Assume you do not want to spend more than 1/3 of your income on housing, your household would need to make $720,000/year.
Nominally, I make a lot more than my parents did at their peak, but in real terms, I can't afford a home in the neighborhood I grew up in.
Anecdotally, the only people I know that can afford to live in my old neighborhood are young people who get help from their parents or people who bought way before covid and rolled up their existing equity into their new home purchases. Among the upper middle class people I know, no one can afford that area or they are not interested bc they think the cost is not worth it.
What's going to happen to the firefighters, cops, and teachers in that area?
Its modern form of feudalism, those who secured low rate loans, pay low prop13 taxes and benefited from equity bubbles are allowed to live good life, others have to serve them for pennies and miserable life in exchange.
When in tension, the needs of people who have a job but cannot buy a home ought outweigh the needs of people whose financial strategy hinged on housing speculation so badly that their income cannot deal with the fallout.
Of all things the state should be encouraging or building safety nets for, housing speculation should be in last place.
My gf and I are fortunate to earn high incomes and it still difficult to find acceptable housing.
Like you, I knew many upper middle class kids when I was younger. The only ones who have purchased houses (so far) are the ones who received help from their parents.
Unfortunately essential workers who don’t make extremely high incomes typically face grueling commutes from far-flung areas or they live in cramped conditions. While living with tons of roommates is sometimes done by single people, for families with children roommate situations are quite undesirable, and so megacommuting is often the only option for those who can’t afford to rent or buy closer to work. I’ve heard of San Jose police officers who commute from Los Banos, a Central Valley town that’s roughly an 80 mile drive away. I believe Tesla’s Fremont factory has a bus for its workers that starts all the way from Modesto. When I lived in the Palmdale area 15 years ago for a summer to do an internship, I saw commuter buses that went all the way to Westside Los Angeles, which is 75 miles away.
Having to commute 3-6 hours per day round-trip is grueling, and it’s sadly the reality for many Californians who do it because they can’t afford to live closer to work.
When I visited Cali, I was hoping I'd be surrounded by ambitious people who wanted to work hard and make a lot of money.
I was disappointed, everyone seemed normal. Maybe a bit Epicurean hedonist. Since my local friends are this work hard and make a lot of money type, and it took a half decade to meet and cultivate those friends, I decided to stay local.
Me and the wife have the resume for Cali, but we decided that profiting 300k/yr + our ambitious friends made it obvious to stay. Maybe if she sells her local company, we'd reconsider it for that nice weather.
In a total plot twist, you can make a lot of money without constantly obsessing about it. You can even be "a bit Epicurean hedonist", enjoy your money, and still make more.
(Also, seriously, if you want people obsessed with "work hard, make lots of money" to the exclusion of anything else, there's no shortage of them. If you can't find any, may I gently suggest that the problem may lie with your search?)
The ideal californian is a combination of intensely ambitious (internally), while also seeming like an epicurean hedonist (externally). Like, you have to show how hard you are not trying, to be an unbelievable successful person.
I have always been convinced that the general numbers on how many rich people (> 10M networth and > 50M networth) there are is a total lie. Maybe its the bubble that I live in, but there are ALOT of very wealthy people on the coasts. The government numbers dont match my anecdata, I think they are missing a ton of income/capital gains, and thus our wealth distribution charts dont match reality
So obviously you'd know that your sample size is so small as to be statistically insignificant, you can't actually measure wealth but may be guessing based on visible status symbols, and that the IRS taxes gains and not holdings.
Obviously as someone highly educated you'd realize anecdotal data can't tell you about broad statistical trends and isn't actually a replacement for real sampling.
And obviously with such a deep understanding of statistics, you'd never go off half cocked and attempt to suggest your vague gut feeling should beat out years and years of auditing, risk analysis and so on.
People can do things like take loans against their investment gains, use that money for other investing. It can absolutely be invisible to the IRS as they skirt tax laws.
> I have always been convinced that the general numbers on how many rich people (> 10M networth) there are is a total lie.
Not really a lie, but most of that wealth is on paper. Those people do not have $10M cash, they $10M in investments at today's fair market value.
Some amount of property appreciation is due to lower interest rates allowing home buyers to roll up their equity over time as they buy bigger, more expensive houses. That works when interest goes down, but the inverse...should be predictable.
People can do things like take loans against their investment gains, use that money for other investing. It can absolutely be invisible to the IRS as they skirt tax laws.
Another example, take the construction industry. Its estimated that half the money getting paid to construction contractors is under the table.
> People can do things like take loans against their investment gains, use that money for other investing.
True, and asset prices go up even more, but what happens when they can't get the financing or have to start selling to pay down the financing of other assets as prices go down?
It's like dark matter. It's out there, just hard to pin down. In NYC private schools, average income for parents (non-scholarship) is in the seven figures. average.
The ultra-rich go to different places, eat at private for pay clubs, you don't see the rich because the rest of us have not even heard the name of these places.
A significant fraction of wealth is difficult to track because asset value isn't "real" until there is a transaction that places a value on it, which the government does track. Until those transactions happen, any estimates of asset value are notional and may not be remotely realizable in a real market.
when i took econ, there were a host of gva shenanigans that made it amply clear how asset values null out. canonical question - when you marry your cook, what happens to gdp ?
accepted textbook answer - gdp goes down because cook was paid income to cook your food. now she is your wife. if your wife cooks food for you there is no transaction. no invoice. no line item. gross value added has gone to zero.therefore gdp goes down. but you are still eating! well, cause the person who’s doing the cooking now is your wife, not a paid cook.
If you feel it's a "total lie" (this suggests both false, and exaggerated was that your meaning?) have you thought about ways to figure this out through primary sources? In my experience the numbers are reasonably accurate. The dynamics of interacting with people who recognize that wealth levels in the group vary dramatically are a pretty Silicon Valley thing AFAICT.
The numbers can't possible capture the circumstances. People can look both privileged and destitute at the same time depending on the metrics used. This can be made even more murky with financial market swings and carried interest.
Unfortunately debt for the individual is not as fungible as wealth.
California is a beautiful state. It has a ton of natural beauty, recreation, entertainment options, food, anything you could want. It's no wonder people want to live there. The ultra rich are able to keep housing costs high and paint false narratives about crime in the media to keep the normies away, while enjoying it themselves. It's a great con.
No, there is a crime problem, specifically a property crime problem. On crimes that involve loss of life, the biggest Californian cities are doing Okay, if not better than expected per capita. On property crime California's cities have very elevated risk per capita, especially SF.
Being killed is a big deal, but no city has such a problem with murder that it can touch the scale of property crime. Thus property crime is the lens by which people will view the risk of crime.
> there is a crime problem, specifically a property crime problem
Not in the Presidio. Nor much of the South Bay. I went to a nice sushi restaurant in an okay part of Sunnyvale, and came out to cops politely watching over my friend's car: he had sat on his keys during dinner thereby opening the boot unattended.
There are also many shades of "ultra-rich". The article claims that millionaires are ultra-rich, but there is a big lifestyle divide between 7, 8 and 9 figures and beyond. Those people aren't living similar lives, it's silly to cluster them together as one unified block.
I don't understand Californian sprawl. When I interviewed at google, I stayed at a hotel in sunnyvale. To do ANYTHING required a drive, because NOTHING is walking distance because EVERYTHING is six lanes wide with a divided median and a 400 car parking lot. It's insanity. Sunnyvale surely isn't the most populated and busy area I'm sure, but I can't understand making ANYTHING like that for anyone. It's so dystopic, needing a car to do anything.
It reminded me a lot of Florida actually. Everything built really flat and spread out, as if businesses can catch communicable diseases or something.
Ya, that's 90% of the country. If anything, California is one of the biggest current densifiers, as the major metros have hit the natural borders and need to densify to accomodate new people. Lots of multistory and transit going up; not enough, but more than most places.
K-shaped recovery in action. The very rich are swimming in profits extracted from the pandemic and profit-price spiral (driving 60% of inflation) while there are massive layoffs at most megacorps and loan rates are too high for people to afford to purchase a home.
Even making $250k/year isn't enough to afford to live where I grew up in San Jose, CA. It became a tiered society of mostly low-paid and middle-income renters contrasted with some retired (maintaining Prop 13) but mostly ultra-rich (mostly people from abroad who bring huge piles of cash) who are the only ones who can afford to live there. It slides into becoming a miserable banana-republic (unless you're very rich).
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[ 127 ms ] story [ 1978 ms ] threadIf you look at the entire US, and assume you have the ability to move and live in any state, there are lots of options for everyone at every income level. (Disclaimer that this doesn’t address poverty, DEI, and other limitations to a good chunk of citizens).
From the Gold Rush, to Hollywood, to East Coasters moving to health spas like Carlsbad or Calistoga, some moved here for necessity but many out of choice and luxury.
A lot more to unpack here but I think it’s interesting.
Your complaint is that rich people wont have their property taxes jacked up and they haven't "eradicated" crime.
As a response to the fact that California is as close to the French Riviera as we have in the US.
https://nypost.com/2023/07/18/san-francisco-stores-lock-up-f...
Look at mcdonalds in detroit and stuff like that, they look like banks inside, with bulletproof plastic panels between customers and staff. Californian elitists just get pissy that they have to see it in their back yard, because they want the suffering required to support their profits to be out of sight and out of mind.
People bitch and moan that "california already spends a shitload on homelessness" but like, it's california, even the small office you have to have just for a social worker to have a laptop to keep things organized will cost millions a year. If you want to function somewhere that has a land cost ten times anywhere else, you are going to have to pay more. Period. The janitors need to live there too.
(And naturally, the longer a house is held, the longer it’s likely to be held, even without Prop 13, but Prop 13 makes it a stronger sticky force.)
That would be assuming certain things, among which would be that if 10% of properties sell every year, there is a consistent 10% chance of a given property selling each year.
What I can tell you from looking at the data on all the houses in the neighborhood in which we bought our home in 2019 is that the vast majority of them had been last purchased more than 20 years earlier (and quite a few more than 30).
Given the significant economic incentives created by Prop 13, houses in appreciating areas should be less likely to turn over than ones in areas where values are relatively stable.
Transferring a Principal Residence Value within a County
“Proposition 60 (Revenue and Taxation Code 69.5)
Property owners of at least 55 years of age may transfer the base year value of their principal residence to a replacement principal residence. The replacement must be of equal or lesser current market value and located within the same county. Sacramento County does not allow base year transfers from other counties.”
https://assessor.saccounty.net/LowerMyTaxes/BaseYearValueTra...
This is how all the rich people avoid prop13 taxation.
If you do this in a "wealthy" area, you will find a lot of properties are held in living trusts (because probate), a lot will be in individual names, and a few will be own by LLCs. The latter are typically rentals (rather than rich people avoiding taxes, they are avoiding lawsuits from their tenants). As of 2023, if you aren't careful[1] the LLC rentals will lose their tax basis when they are inherited.
If you were working for Redfin or Zillow you could probably pull this out of data you had on your servers because the companies have paid the counties for copies of all the records.
[1] Where careful here is having created the LLC organizing document (or amended it) to allow for the transfer of majority ownership without triggering a sale. See this link for the current hoops -- https://www.kaidenelderlaw.com/blog/2023/march/can-an-llc-he...
For all but the most constrained the same product category(inherent quality differences may or maynot exist) is available at any price point.
Having lived in areas with harsh winters and then moving back to CA, you’re basically paying to gain an extra 3 months of life every year.
Huh? How so?
The amount of “nice days” you get in CA is much greater than elsewhere in the US.
It’s not that I can’t deal with the weather; I dream of living in the Tokyo area again despite its brutally hot and humid summers. But it’s going to be difficult giving up a Mediterranean climate.
People moved to CA to try to make it big in movies or music, although most failed, they still lived a pretty good lifestyle throughout most of the 20th century. Not because they were already Brad Pitt or Madonna.
People moved to Silicon Valley, initially just to get jobs at a burgeoning semiconductor industry a few decades ago. Then later to start up companies in personal computing or internet businesses. Not because they were already Steve Jobs or Jeff Bezos. Although most people never got that level of success, there was still a pretty good lifestyle available to young adults in the valley throughout most of the late 20th century.
Most people throughout California's history moved there for opportunity not as a luxury.
And the question is more about whether it’s currently primarily a luxury option as a headline idea, with a thousand different caveats.
That means the board wouldn't put requirements on investors, and they'd reign in any attempt by the CEO to do so. Even if the idea of restricting investors by location wasn't incredibly bad business in the first place.
You're also forgetting that money makes residence meaningless. If you are indeed in the "ultra wealthy" class, you have a residence in wherever is most advantageous to you, and other pads to hang in. Your investments will happen through companies located wherever is most advantageous to you as well. Need a new location, spin up an extra company.
It's an interesting thought experiment, but it seriously misjudges the balance of power between folks having money and those possibly generating money at a later point.
My parents house went from $500K when they bought in 1995 to +$3M today. If my math is right, that would mean the all-in payment (principal, interest, taxes) would be around $20,000/month at today's rate. Assume you do not want to spend more than 1/3 of your income on housing, your household would need to make $720,000/year.
Nominally, I make a lot more than my parents did at their peak, but in real terms, I can't afford a home in the neighborhood I grew up in.
Anecdotally, the only people I know that can afford to live in my old neighborhood are young people who get help from their parents or people who bought way before covid and rolled up their existing equity into their new home purchases. Among the upper middle class people I know, no one can afford that area or they are not interested bc they think the cost is not worth it.
What's going to happen to the firefighters, cops, and teachers in that area?
Of all things the state should be encouraging or building safety nets for, housing speculation should be in last place.
My gf and I are fortunate to earn high incomes and it still difficult to find acceptable housing.
Like you, I knew many upper middle class kids when I was younger. The only ones who have purchased houses (so far) are the ones who received help from their parents.
Having to commute 3-6 hours per day round-trip is grueling, and it’s sadly the reality for many Californians who do it because they can’t afford to live closer to work.
I was disappointed, everyone seemed normal. Maybe a bit Epicurean hedonist. Since my local friends are this work hard and make a lot of money type, and it took a half decade to meet and cultivate those friends, I decided to stay local.
Me and the wife have the resume for Cali, but we decided that profiting 300k/yr + our ambitious friends made it obvious to stay. Maybe if she sells her local company, we'd reconsider it for that nice weather.
In a total plot twist, you can make a lot of money without constantly obsessing about it. You can even be "a bit Epicurean hedonist", enjoy your money, and still make more.
(Also, seriously, if you want people obsessed with "work hard, make lots of money" to the exclusion of anything else, there's no shortage of them. If you can't find any, may I gently suggest that the problem may lie with your search?)
Obviously as someone highly educated you'd realize anecdotal data can't tell you about broad statistical trends and isn't actually a replacement for real sampling.
And obviously with such a deep understanding of statistics, you'd never go off half cocked and attempt to suggest your vague gut feeling should beat out years and years of auditing, risk analysis and so on.
Not really a lie, but most of that wealth is on paper. Those people do not have $10M cash, they $10M in investments at today's fair market value.
Some amount of property appreciation is due to lower interest rates allowing home buyers to roll up their equity over time as they buy bigger, more expensive houses. That works when interest goes down, but the inverse...should be predictable.
People can do things like take loans against their investment gains, use that money for other investing. It can absolutely be invisible to the IRS as they skirt tax laws.
Another example, take the construction industry. Its estimated that half the money getting paid to construction contractors is under the table.
True, and asset prices go up even more, but what happens when they can't get the financing or have to start selling to pay down the financing of other assets as prices go down?
Unfortunately debt for the individual is not as fungible as wealth.
Being killed is a big deal, but no city has such a problem with murder that it can touch the scale of property crime. Thus property crime is the lens by which people will view the risk of crime.
Not in the Presidio. Nor much of the South Bay. I went to a nice sushi restaurant in an okay part of Sunnyvale, and came out to cops politely watching over my friend's car: he had sat on his keys during dinner thereby opening the boot unattended.
It reminded me a lot of Florida actually. Everything built really flat and spread out, as if businesses can catch communicable diseases or something.
Even making $250k/year isn't enough to afford to live where I grew up in San Jose, CA. It became a tiered society of mostly low-paid and middle-income renters contrasted with some retired (maintaining Prop 13) but mostly ultra-rich (mostly people from abroad who bring huge piles of cash) who are the only ones who can afford to live there. It slides into becoming a miserable banana-republic (unless you're very rich).