4 ms·

This seems to ignore cost of living. A lot of the reason salaries are high in San Francisco is because rent is high, and rent is high because salaries are high

by powera 11y ago

This seems to ignore cost of living. A lot of the reason salaries are high in San Francisco is because rent is high, and rent is high because salaries are high. Just because people can make "more money" in San Francisco doesn't mean they'll be better off.

ams6110 11y ago
Rent is high because housing is scarce. That does lead to higher salaries (because you can't attract employees if they can't afford housing) but the rent is not high just because salaries are high.
- Avshalom 11y ago
  Rent is high because housing is scarce AND people can afford high rent. Like you say you can't get employees there if they can't afford it, but that also means that if no one could afford it there would be no demand at that price. Landlords will absolutely try to extract every last drop of economic surplus out of their properties.
- totalrobe 11y ago
  Rent is not high just because of scarcity. It's high in North Virginia even there is plenty of new housing on the market - the problem is that developers are only building luxury apartments and trying to rent at above market prices. Most of these places are offering 3-4 months free up front because nobody is paying the obscene sticker prices for a 12 month lease. It's not just a local phenomenon - public REIT's are buying up affordable units nationwide and renting them out at >20% above market... http://www.multifamilyexecutive.com/business-finance/luxury-apartments-galore-at-what-cost_o http://www.multifamilyexecutive.com/business-finance/luxury-...
  - exelius 11y ago
    Rent is high because home-buying credit is scarce. Banks are still gun-shy about lending, so only people with stellar credit or who are borrowing a small percentage of their earning power can get home loans right now. Which has caused REITs and other PE organizations to come in and buy up real estate to fill the gap -- and REITs are not interested in dealing with "affordable" rental units and the social problems that often come along with them. So they market their buildings as "luxury" and attach a high price tag. This has led to a couple of side effects: a shortage of rental units (and the associated high rental prices), a shortage of qualified buyers (people aren't able to roll the equity from their starter house into a new home because they never bought the starter house), and an extreme shortage of new construction at the low end of the market (the only people who can even qualify to buy today are upper-middle class). We're still not out of the subprime quagmire yet. The rental market in the US was sized for a world where subprime mortgages existed -- and now that they largely don't, those people have to live somewhere. Regardless, "affordable" housing will not exist unless it is subsidized by the government. The private sector has no interest in renting to the low-income segment when the "up-market" segment is lower cost, higher margin and has significantly lower legal risk.
sliverstorm 11y ago
Well, if you assume everyone nationwide manages to save 10% of their income, and then everyone moves to Florida when they retire- San Franciscans will indeed be better off.
- rm_-rf_slash 11y ago
  Expecting anyone to do anything in their self-interest but stay alive is abysmal public policy and shows little understanding of history or human nature.
mapt 11y ago
"High cost of living" is a concept you get to use in personal decisionmaking, but it's not a concept you get to use in probing this causation, because it becomes tautological. High cost of living, where cost of living is mostly housing, is associated with high economic productivity combined with low housing stock. It cannot be used to normalize high salaries to some other abstract concept that says useful things about economic productivity, because it only co-occurs with high salaries. The article is asking why city A and city B became differently economically productive, not for excuses as to why one isn't technically rich or comparisons of disposable income. That's a different discussion.
- ghaff 11y ago
  Although it can be overstated, the real question (modulo the fact that, for geographic reasons, some cities and areas are better able to add housing stock than others) is why companies are willing to effectively channel large amounts of money to landlords and home sellers in certain areas of the country in order to be located there. I'm not sure the article makes an especially coherent argument on this particular point other than observing a trend toward more centralized industries.
Aloha 11y ago
I believe strongly that income increases have largely been to track to cost of living, in places where cost of living has remained flat, amazingly enough, incomes also remain flat. I'm also dubious of the negative effects of deregulation of the airlines and rail/trucking industries - because of the machinations of the ICC Railroads broadly almost ceased to be a going concern.

by powera 11y ago

ams6110 11y ago

Rent is high because housing is scarce. That does lead to higher salaries (because you can't attract employees if they can't afford housing) but the rent is not high just because salaries are high.

Avshalom 11y ago
Rent is high because housing is scarce AND people can afford high rent. Like you say you can't get employees there if they can't afford it, but that also means that if no one could afford it there would be no demand at that price. Landlords will absolutely try to extract every last drop of economic surplus out of their properties.
totalrobe 11y ago
Rent is not high just because of scarcity. It's high in North Virginia even there is plenty of new housing on the market - the problem is that developers are only building luxury apartments and trying to rent at above market prices. Most of these places are offering 3-4 months free up front because nobody is paying the obscene sticker prices for a 12 month lease. It's not just a local phenomenon - public REIT's are buying up affordable units nationwide and renting them out at >20% above market... http://www.multifamilyexecutive.com/business-finance/luxury-apartments-galore-at-what-cost_o http://www.multifamilyexecutive.com/business-finance/luxury-...
- exelius 11y ago
  Rent is high because home-buying credit is scarce. Banks are still gun-shy about lending, so only people with stellar credit or who are borrowing a small percentage of their earning power can get home loans right now. Which has caused REITs and other PE organizations to come in and buy up real estate to fill the gap -- and REITs are not interested in dealing with "affordable" rental units and the social problems that often come along with them. So they market their buildings as "luxury" and attach a high price tag. This has led to a couple of side effects: a shortage of rental units (and the associated high rental prices), a shortage of qualified buyers (people aren't able to roll the equity from their starter house into a new home because they never bought the starter house), and an extreme shortage of new construction at the low end of the market (the only people who can even qualify to buy today are upper-middle class). We're still not out of the subprime quagmire yet. The rental market in the US was sized for a world where subprime mortgages existed -- and now that they largely don't, those people have to live somewhere. Regardless, "affordable" housing will not exist unless it is subsidized by the government. The private sector has no interest in renting to the low-income segment when the "up-market" segment is lower cost, higher margin and has significantly lower legal risk.

sliverstorm 11y ago

Well, if you assume everyone nationwide manages to save 10% of their income, and then everyone moves to Florida when they retire- San Franciscans will indeed be better off.

rm_-rf_slash 11y ago
Expecting anyone to do anything in their self-interest but stay alive is abysmal public policy and shows little understanding of history or human nature.

mapt 11y ago

"High cost of living" is a concept you get to use in personal decisionmaking, but it's not a concept you get to use in probing this causation, because it becomes tautological. High cost of living, where cost of living is mostly housing, is associated with high economic productivity combined with low housing stock. It cannot be used to normalize high salaries to some other abstract concept that says useful things about economic productivity, because it only co-occurs with high salaries. The article is asking why city A and city B became differently economically productive, not for excuses as to why one isn't technically rich or comparisons of disposable income. That's a different discussion.

ghaff 11y ago
Although it can be overstated, the real question (modulo the fact that, for geographic reasons, some cities and areas are better able to add housing stock than others) is why companies are willing to effectively channel large amounts of money to landlords and home sellers in certain areas of the country in order to be located there. I'm not sure the article makes an especially coherent argument on this particular point other than observing a trend toward more centralized industries.

Aloha 11y ago

I believe strongly that income increases have largely been to track to cost of living, in places where cost of living has remained flat, amazingly enough, incomes also remain flat. I'm also dubious of the negative effects of deregulation of the airlines and rail/trucking industries - because of the machinations of the ICC Railroads broadly almost ceased to be a going concern.