19 ms·

Bay Area wages soaring but still can’t keep up with housing prices

138 points by 11thEarlOfMar 10y ago

segmondy 10y ago
It's not about how much you make, it's about how much you save and the cost of living. An article could also be published about how the average US wage is 5x the wages in another country. What would that mean? Nothing by itself. What matters is this, after your expenses how much do you have saved? How long will what you save a month last you if you were out of work? How long will you be able to find a replacement job? What options do you have in moving to a cheaper place? What lifestyle do you get to experience by being in a particular environment? All that matters. I get Silicon Valley envy from time to time, spoke to my buddy who moved and use to have a 5-10minute commute. Now he has a 2hr one way commute since he's trying to save money. Yet his rent is 50% more. I doubt he's saving more. He keeps trying to serenade me to move. I run the numbers, and I would have to make a whole lotta money for SV to be worth it. :-(
h4nkoslo 10y ago
It's really uninformative to look at average incomes or average prices anywhere, let alone someplace with as big of a spread as the Bay Area.
- deleted 10y ago
  [deleted]
- 11thEarlOfMar 10y ago
  Very true. In 2014, the average tech worker salary in San Mateo County was $291,497. But if you took out one specific tech worker, it dropped by $80,000 to $211,000. Mark Zuckerberg's income alone impacted the average by $80,000 across an entire county [0]. It impacted the median by, probably $0. Edit: For completeness; US Median Household Income: $51,939 [1] San Mateo County: $79,548 [2] Not quite as newsworthy... [0] http://valleywag.gawker.com/average-tech-wages-up-to-291-497-in-san-mateo-county-1625755095 http://valleywag.gawker.com/average-tech-wages-up-to-291-497... [1] https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=meadian+US+household+income https://www.google.com/webhp?sourceid=chrome-instant&ion=1&e... [2] http://citylab.news21.com/data/types/19/ http://citylab.news21.com/data/types/19/
  - dublinben 10y ago
    This is why statistics on the "average" in a population are worthless. The meaningful statistic here is the median, which isn't subject to such skewing.
  - stdbrouw 10y ago
    A nitpick, but "average" can refer to any sort of central tendency, whether it's the arithmetic mean, the harmonic mean, the median, the trimean or anything else.
    - jdale27 10y ago
      You may be technically correct regarding the common usage of the word "average". However, "average" is most commonly used to refer to the arithmetic mean. Using the word "average" to refer to the median is bad writing, and furthermore, using the arithmetic mean instead of the median to represent the "central tendency" of a distribution that is highly skewed and/or has extreme outliers is bad statistics. Journalists who are going to write about these things should know better.
      - stdbrouw 10y ago
        > Using the word "average" to refer to the median is bad writing It can be, but not necessarily. Otherwise, you'd have to say that the average Joe has 1.9 legs. Median or mode are much more natural in that context. Other than that, not trying to make any particular point, of course you're right that using the arithmetic mean is a lousy practice for many kinds of data.
- chiefalchemist 10y ago
  Yes and no. The fact remains, even with higher incomes, housing increases to mitigate the gains. I mean, in spite of all the income is anyone saying SF CA is an affordable place to live?
misnamed 10y ago
Housing is proportionally higher cost but many things aren't that much more expensive in the Bay, which helps cancels it out. Plus if you're willing to commute, rent and/or live with other people, it all helps (unlike that Yelp lady who got her own place, kept her car, etc...).
- tptacek 10y ago
  You are describing an area that is perfectly acceptable for unattached 20-somethings but more or less untenable for young families.
  - blackguardx 10y ago
    Look at how families in the US were raised historically in big cities or even in the suburbs. People were happy with much less space than is considered "untenable" today.
    - tptacek 10y ago
      Do you really think this is a persuasive argument for raising a family in a shared 2-bedroom apartment?
      - blackguardx 10y ago
        No, but many people who want kids seem to think that they need so much space. Someone upthread lamented how small the housing stock in SFBay was at "only" an average of 1500 sq ft. That was the normal sized house 50 yrs ago regardless of how many kids there were.
        tptacek 10y ago
        What's the median price of a 2bdr condo in SFBA right now? Because if you're planning to raise a family in SFBA, that's what you need. You can't rent it, because you can't routinely move small families --- changing school districts is incredibly disruptive for children --- and you would be somewhat lucky to keep a good 2bdr apartment for 5 years, let alone 12-15.
declan 10y ago
Silicon Valley wages would have to increase by something like 3x--or house prices would have to drop by over 50%--to make houses here as affordable as the national average. Neither is likely to happen. A median house in San Mateo County costs 11.3x median county income. A median house nationally costs only 3.3x median national income. So if you wish to buy a house in this area (and of course many people may prefer to rent), you should avoid moving here unless you can make those numbers work. The reality for homebuyers is a bit worse than even those numbers indicate. Income taxes in California are very high, and most of the SF and peninsula housing stock is older and smaller than the national average. The median San Mateo County home is 1500 sq. ft; the median national home is closer to 2,500 sq. ft. Construction, renovation, and maintenance costs are higher as well. Gas taxes are higher than the national average, sales taxes are higher, electricity costs are higher, etc. SF and peninsula municipalities have planning reviews that can add tens of thousands of dollars, plus state requirements (Title 24) and local requirements (no site development without survey, civil engineer, etc.) that add still more. Also geotechnical reviews and more expensive foundations--remember we're in earthquake country, folks. On the other hand, we have very pleasant weather. :) --- Sources: San Mateo County's median home value is $1.13M[1]. The county's median household income is approx. $100K[2]. A house costs 11.3x income. [1] http://www.zillow.com/san-mateo-ca/home-values/ http://www.zillow.com/san-mateo-ca/home-values/ [2] http://www.mercurynews.com/2014/08/28/can-working-class-families-afford- http://www.mercurynews.com/2014/08/28/can-working-class-fami... The national median home is $188K[3]. The median national household income is $56.5K[4]. A house costs 3.3x income. [3] http://www.huffingtonpost.com/2014/03/13/median-home-price-2014_n_4957604.html http://www.huffingtonpost.com/2014/03/13/median-home-price-2... [4] http://www.census.gov/newsroom/press-releases/2016/cb16-158.html http://www.census.gov/newsroom/press-releases/2016/cb16-158....
- iaw 10y ago
  For the price of an okay family home in an okay neighborhood of Palo Alto you can buy a villa in the South of France... I'm still not sure how to process that.
  - x0x0 10y ago
    The whole thing really puts the lie to the myth engineers in the valley are well paid. In the land of million dollar entry level homes, even $200k of income (!!!) means you will struggle to own somewhere to live. That barely qualifies you for a $1m loan, and that with a $100k downpayment. I'm aware you can commute eg an hour plus each way from easy bay and find homes for $700k (a bargain!), but something has gone wildly wrong when supposedly well-paid employees can't afford an entry level home in the city they work in.
chiefalchemist 10y ago
Those in favor of a forced $15 min wage should take note. More money in The Market gives others the opportunity to see what increases it can bear. That is, to presume you can increase income and all other costs will remain fixed is naive.
- RhodesianHunter 10y ago
  Sure, but it's not like all costs will rise either. The question is whether there's a net benefit, and if you can definitively answer that you'll probably earn a Nobel.
- StanislavPetrov 10y ago
  You might have a point in we lived in a free market where the FED didn't spend $6+ Trillion (with a T) in the last 8 years alone to artificially prop up real estate and equity markets.
  - forgetsusername 10y ago
    >You might have a point in we lived in a free market where the FED didn't spend $6+ Trillion (with a T) in the last 8 years alone The Fed didn't "spend" $6TT; they exchanged one asset for another that was in high demand. Also, do you have any idea how much wealth disintegrated in 2007-2008?
- gjolund 10y ago
  It is cute that you think we live in a free market.
CrocODundee 10y ago
And home prices are, what, 8x to 15x US average? You can buy a great house in Omaha for $150,000, a comparable home in the valley would run $2,500,000 or more. And yes, you can get a job in Omaha that pays well! Unfortunately, many people now have to treat the valley as a stepping stone, it's a gauntlet to endure long enough to make substantial money and then they have to get out. Get rich from options or some other liquidation event, then pack up and move to a place where cost of living is vaguely reasonable. For many people, the only way to stay in the valley longterm, establish a household, maybe have a family with kids, and comfortably afford a generic "middle class" standard of life, is with a truly significant payout, the type of payout that would define someone as "rich" elsewhere in the USA. I know this is uncomfortable and unpopular to discuss, and we're all very fortunate to even entertain such discussions especially compared to the hardships of most Americans and global citizens, but who in tech has not experienced this? Whether it's the enticement to go work in the valley for some theoretical payday, or the feeling you must leave once you reach X net worth otherwise you'll never be able to actually afford it?
- MBlume 10y ago
  Some people are trying to fix it: http://www.sfyimby.org/ http://www.sfyimby.org/
  - muzz 10y ago
    They are well-intentioned but misguided about the true causes of housing shortage, which are more related to statewide factors like Prop 13 than local ones.
    - MBlume 10y ago
      No, pretty much all of them know prop 13's a serious problem. You can't repeal prop 13 except at the ballot, which would be pretty hard.
- seanmcdirmid 10y ago
  I know this might sound like a broken record, but a lot of people don't want to live in Omaha: it is a right-valued sprawling city with very four season weather. Compare SF to other west coast cities, and maybe even to a few east coast ones...but those more central midwest and mountain west cities have a very different lifestyle to consider.
jimmywanger 10y ago
It makes no sense these days to buy in the silicon valley. I was talking to some people renting out their house for about 3500 dollars a month. It's a single story ranch house (3 bed 2 bath) that they bought in the eighties for 150k. It's now worth about 1.5 million. Doing the math, a mortgage + insurance + property taxes on a 1.2 million dollar mortage (less 300k for the down payment) is about 7k. And rents should be inherently higher than house payments. Why would you buy when you could just rent, and not deal with any of the maintenance and stuff?
- ethanbond 10y ago
  Because those people you talked to are renting their house out at way below market rates (probably)? You can easily rent out a single bedroom for $1500-2500 anywhere near the more central SV hubs.
  - jimmywanger 10y ago
    Two things. 1) Way below market rates: It is below market rates, but not that far below. This house is in west San Jose, and according to zillow and CL, they might be able to get 5k for it. Maybe. That's still far below the 7k mortage + property taxes, not to mention the investment income you could be making off the 300k you put up for a down payment. 2) Renter protection laws: The renter was introduced to them personally, and they were vouched for by a mutual friend. It is extraordinarily difficult to evict people in the bay area, even for non-payment of rent. The rentees are not professional property managers, they don't know the ins and outs of rental law, so they're willing to take a haircut. Having bad tenants in your property will easily wipe out 2k a month for 2 years. Edit: Of course they could hire a professional property manager, who would know all the laws and deal with bad tenants, but that would come right out of the bottom line. I don't know how much property managers charge, but then the trick is not to find a good tenant, but to find a good property manager. It would be like a non-technical cofounder looking to find a good engineer. Where would you even start?
    - jimmywanger 10y ago
      Oh, just for completeness. On Zillow (and we all know how accurate or not it is) the house apprasises for ~1.8 million. The zestimate for rent is about 4300. So not terribly under market.
ktRolster 10y ago
As long as there is more demand than supply, wages will never keep up with housing prices. It's a simple matter of math (the pigeon hole principle, actually).
- esaym 10y ago
  >> (the pigeon hole principle, actually). IE if there are 10 houses for rent and 11 people want to rent, there will be one house in which will have two people trying to rent it.. lol
  - im4w1l 10y ago
    They could live in the same house.
- dionidium 10y ago
  The same principle explains why many rust belt cities have vast areas of abandoned tracts. It's not that they actually lost people. Regionally speaking, most of them didn't. But sprawl created new homes while not adding new families to live in the old ones. The math in both cases is pretty straightforward.
ChuckMcM 10y ago
I toured an open house in Sunnyvale yesterday to have a look at what $1.7M buys you these days. 1900 sq ft, four bedrooms, two and a half baths, a nicely remodeled kitchen and a small patch of yard. And I asked the realtors if they expected to get any offers. They already had offers but they are waiting until Monday to sit down and sift through them. And then the big question, could they describe the type of people buying these houses? The answer was couples where both parents worked in the tech industry with a combined income of over $300,000. Usually one child and often one on the way, many have houses already further away (Livermore, Gilroy, Morgan Hill) that they are selling. Now that is unscientific, it is the experience of one broker who is sitting in one open house, showing the house to prospective buyers and gently quizzing them on their financials in order to understand if they are good prospects or not. But I can see other evidence that its probably accurate, the folks moving into my neighborhood fit that profile. A lot of people looking for "good schools" because if you don't pay private school tuition that saves you $15,000 per kid per year you can put into house payments. My point being that the houses are being listed and sold in a short time frame. That suggests that the housing market is pricing appropriately for the buyers. That there are more buyers than houses pushes up the price and pushes out the buyers who do not earn as much. However, unlike San Francisco, there is a lot of residential building being put up on the peninsula and south toward San Jose. Across a wide spectrum from apartments to condos to single family attached, and single family detached. Sunnyvale has a ballot measure (https://sunnyvalepubliclandsact.com/ https://sunnyvalepubliclandsact.com/) that is seeking to limit how the city can transfer park land to developers to turn into houses (or hotels, or office parks). That measure is an artifact of all the building that is going on.
- sandworm101 10y ago
  >> My point being that the houses are being listed and sold in a short time frame. That suggests that the housing market is pricing appropriately for the buyers. I'd call that a seller's market. Houses may be selling quickly because of a lack of supply and elite buyers are moving asap. A buyer's market would be one where buyers are not in a hurry, one where houses stay on the market for a while, negating any need to bid high and fast. I'm currently in the ultimate seller's market (Vancouver, north shore) with a <1% rental vacancy rate and houses selling within hours. I laugh a little at the prices in the OP. 1.7m won't get you much in my neck of the woods. Some 35 new apartments (2Br 2Bath) in west van just pre-sold for 7.5m each. And they haven't even broken ground on the building. The city/province is starting to take drastic steps as the young flee and shops close. The market is in a bit of a panic, but that is what drastic steps were meant to do.
TheSageMage 10y ago
As a young(late 20's) Software Developer and San Francisco resident who loves the weather(who doesn't love yearly temp range of 50-70) and the city feeling(being able to walk/muni everywhere), what are some alternatives? My wife and I are DINK's, so the suburbs are too sleepy for us, and we've done the driving life style in the South, which we hated.
- avar 10y ago
  Similar situation and I like some of the same things, I went for Amsterdam. It's nice.
  - akgerber 10y ago
    How do the wages compare? My impression is that they're significantly less in Europe.
- jandrewrogers 10y ago
  Seattle has similar temperature range and city living, probably about as close as you'll get to San Francisco in a city with tons of good tech jobs. I left my car in the Bay Area when I moved here and walk everywhere, the only time I drive is to go hiking and similar. Seattle is expensive but less so than the Bay Area. Lack of income tax in Seattle/Washington is huge if you make tech wages. My mortgage in downtown Seattle is less than the additional income taxes I would pay if I lived in California!
  - TheSageMage 10y ago
    How are the local laws and politics? I feel like SF/CA have a lot of regressive housing policies that some other US cities are trying to adopt.
    - jandrewrogers 10y ago
      Much better than the Bay Area, they are throwing up high density construction about as fast as they can build it (there are about a hundred sky cranes over the city right now), both glass skyscrapers in the downtown core and mid-rise buildings (4-6 stories) in the immediately adjacent desirable neighborhoods like Capitol Hill. Minimal restrictions on new construction. Importantly, zoning is intentionally mixed, so a significant fraction of the population doesn't drive for much of anything unless they choose to move way into the suburbs and it is a very neighborhood-y city. When a building goes in, the lower floor is often restaurants/bars/retail/etc to allow everything to be local. This is important because Seattle's highways are at max capacity and they can't be expanded anymore due to geological limitations (surrounded by water, no unused land remaining). The only way to continue the insane pace of population growth is to build up in a way that minimizes the amount of driving required, so that is how they have been dealing with it.
ScottBurson 10y ago
One interesting question to ask is, where is all this money, that people are spending on housing, going? Owners of rental property are obviously doing well. The other group making out are people who have owned property here during the times that prices have been appreciating and who sell and move out of the area; anyone who buys the property after them has to make the now-inflated mortgage payments. And I think the question we should ask as a society is, is this how things should work? The reason property here has become so valuable, and continues to become even more valuable, doesn't have that much to do with the individual contributions of the property owners. Somebody has to own the real estate of the area, after all; from a societal standpoint it doesn't matter very much who that is. Rather, the value is being created by the local economy collectively. The reason Silicon Valley is such a great place to start a tech business is because of all the tech businesses that are already here, and all the people already working for them. Does it really make sense for property owners to receive such a large fraction of the value being created? And let's be clear: the property owners wind up with most of it. Those of us living in the Valley, and commanding salaries that sound positively royal to the rest of America, are not actually living much (or any) better than most Americans. Most of the additional value we create by working for these high-tech companies is being siphoned off by property owners. Even if you own property in the Valley, if you bought it recently, your mortgage payments are going to cover a large check written to one of the previous owners. Those familiar with the work of Henry George [0] will understand that I am summarizing his argument. If you live in the Bay Area, I urge you to read his work. I think the Bay Area desperately needs a land value tax system. Yes, it would change the character of the area. But that character is changing anyway. Short of forbidding newcomers from moving here -- and how would one do that? -- there's no way to stop continued urbanization. But, I understand that that's not happening anytime soon. This brings me to good old Prop. 13. Kim-Mai Cutler [1] points out that Prop. 13 disincentivizes cities from approving residential construction, since they realize more tax revenue from commercial buildings. Prop. 13 needs to be revised. The key change that is needed is that instead of limiting the amount of property taxes, we need to limit the tax payments only. Here's how that would work. The locality would impose whatever tax rate it saw fit, by whatever processes were in effect pre-Prop. 13. However, the homeowner's payment in a given year would be limited by the Prop. 13 formula. The locality would receive a lien on the difference, that lien not becoming due until the property is sold. This would allow localities to participate in the appreciation of property values; the windfall wouldn't all go to the property owner. Yet, it still protects those on fixed incomes from being forced out of their homes by property taxes -- the primary selling point of Prop. 13. [0] http://www.henrygeorge.org/pcontents.htm http://www.henrygeorge.org/pcontents.htm [1] https://techcrunch.com/2014/04/14/sf-housing/ https://techcrunch.com/2014/04/14/sf-housing/
y_u_no_rust 10y ago
SF transformed technology into a cancer.
noobermin 10y ago
At what point will the drive back to equilibrium occur, and hopefully rational free market actors figure out you can hack anywhere in the country and that there are many other places you can work or set up shop?
- 11thEarlOfMar 10y ago
  It's just like Hollywood attracting actors, directors and producers. As long as there is the factor of prestige, Silicon Valley is going to continue to see this nearly unbelievable housing market. If there were a true tech crash, like the dot-com bubble bursting, we'd see a slow down. But in order for there to be a sustained weakening, Apple, Google, Facebook, and the Y Combinators of the valley will all have to see a substantial weakening in profitability. It's the high salaries they are able to pay to legions of workers that is primarily responsible for housing prices. That's what this article is about.
  - noobermin 10y ago
    My point is hackers are idealistic supposed to be more rational--I was sarcastic in my post, but statistically, they should be more rational. I don't know if I need to break this to any of you, but you can hack on anything. I learned C on an island with a 28 kbps internet (that was metered). I didn't have to fly to SV to attend a code bootcamp and shell out hundreds to a thousand dollars. Also, the internet is a wonderful thing, being connected to people has never been easier. My point is that no Apple, et. al, you can't keep extracting heat from the system and violate the second law of thermodynamics, at some point, people will evaluate the costs and people will be more and more reluctant to relocate to SV just to have a shot.
    - 11thEarlOfMar 10y ago
      Allow me to say it a little differently, then. As long as profits flow to silicon valley companies from around the world, people from around the world will also flow there, and housing prices will increase. So I'd say that the heat is being extracted from the world's population (dollars from their pockets) and as long as that source is plentiful, the growth will continue. Since the global standard of living is increasing, the world's ability to buy iPhones and thereby consume Internet advertising presented by Google and Facebook, all continues to grow. Come to think of it, it may be self sustaining. How many HN readers came to SV with a job offer in hand? The more profitable the companies are, the bigger the delta between what SV pays and what the ROW pays and the more people will be willing to take the plunge. This could go on for a very long time. (Google + Apple + Facebook pre-tax profit = ~$20 billion in the last 3 months.)
dmourati 10y ago
We're shopping for a new home in Silicon Valley and are also considering picking up. Median home price in Mountain View for a single family home is around 1.7M. This price has about doubled in the past 5 years. The schools are variable as rated which also rules out some areas for us. We have a small child at home and need to find someplace to start him in public school. I think we will sit tight for a while and see what prices do. Most sites I've looked at call for a leveling off on price over the next year. This would help us increase the amount for our down payment and get into a property we could afford with decent schools. Luckily our rent is very low (<$2000 for a 2b).
LargeCompanies 10y ago
What's the starting salary for a front-end dev from jr to intermediate to sr. in the valley/san fran now? Here in the Mid-Atlantic it ranges from 60k to 150k.
- autotune 10y ago
  90K is the average according to glassdoor: https://www.glassdoor.com/Salaries/san-francisco-front-end-developer-salary-SRCH_IL.0,13_IM759_KO14,33.htm https://www.glassdoor.com/Salaries/san-francisco-front-end-d... You really can't afford to make less than 100K out here though unless you can stand roommates.
- phamilton 10y ago
  Small well funded startup: 100k-180k salary plus equity Google (similar at other big cos): 160k-350k total comp (salary, bonus, restricted stock units)
- gjolund 10y ago
  I pulled 150k to 225k from 2009 to 2014.
swframe 10y ago
What if large companies built on-campus employee housing on top of their parking lots and moved the parking lots below ground? They could make a "corporate" city by adding a mall, hospital, child care/schooling. Imagine being able to have lunch with your family everyday; having a 15 minute walk to work.
- skybrian 10y ago
  Zoning often prevents it. Only recently did Mountain View approve housing north of 101.
- thirdsun 10y ago
  Would your housing be tied to your employment? Most people probably prefer the option to change jobs without losing their home.
siculars 10y ago
What this article and many of the comments fail to mention is the supply side of the conversation. If you drive south from San Fran to San Jose you can probably count all the building more than 10 stories along the way. This price spike is entirely manufactured by the policies of those already living in this region.
partycoder 10y ago
Rent, in combination with California taxes, and cost of living, makes it very challenging to save in comparison to other states.
Tempest1981 10y ago
Then this today -- wonder why? "New report shows rents falling in San Jose, San Francisco" http://www.mercurynews.com/2016/09/25/new-report-shows-rents-falling-in-san-jose-and-san-francisco/ http://www.mercurynews.com/2016/09/25/new-report-shows-rents...
gjolund 10y ago
The only way I would live in SF again is in a van. There is no reason to throw your money away on that housing market, just bank your salary and count the days until you leave.
geebee 10y ago
The valley and SF need to build more, but eventually we need to accept that many talented technology workers will neither wish to nor be able to live in a small peninsula in central northern California. High tech companies will change then they need to change. If they find that they are not able to access a high quality workforce in the numbers they need unless they allow their workforce to live in other areas, and they lose out to competitors who do allow this, they will change. I've been beating a drum here on HN, and I know that people are probably getting tired of hearing about it, but here it goes again... we must not allow employers to control the residency and work rights of their employees. All workers, technology and otherwise, immigrant or born in the US, must be free to pursue their educational path, career path, and place of employment according to market signals and their own personal interests and abilities. Anything else, at scale, will produce harmful market distortions and is an affront to personal freedom. If employees who have the right to make this choice are not choosing to subject themselves to brutal housing costs in spite of salaries that silicon valley employers insist are at shortage-indicating highs, that's the market's answer. We should welcome immigrants, but we should not welcome Facebook's control over an immigrant's right to decide what to study, where to work, or what profession to choose as a condition of coming to the united states. As long as corporations have this coercive power over individuals on a large scale, expect nothing to change. Remarkably, the corporations who lobby for this sort of massive personal power over technical workers often wear the halo of being "pro-immigrant". "You may live and work in the United States provided that you take the technical interview exams I insist you take, study the fields I insist you study, live in the high cost region I insist you live in, work on the projects I insist you work on, for the salary I've decided is fair". Why do they get away with this?
dragonwriter 10y ago
> Bay Area wages soaring but still can’t keep up with housing prices Wages are soaring because businesses are trying to hire people faster than local supply of talent can respond, driving up the market clearing price of labor. But that means that people are making more in the Bay Area, and there are more of them working (and thus, wanting to live) in the Bay Area -- both of which are factors driving up demand for housing, and thus price. Its thus unsurprising that the wages can't keep up with housing prices, since they are one of several means by which housing prices are being driven up.

138 points by 11thEarlOfMar 10y ago

It's not about how much you make, it's about how much you save and the cost of living. An article could also be published about how the average US wage is 5x the wages in another country. What would that mean? Nothing by itself. What matters is this, after your expenses how much do you have saved? How long will what you save a month last you if you were out of work? How long will you be able to find a replacement job? What options do you have in moving to a cheaper place? What lifestyle do you get to experience by being in a particular environment? All that matters. I get Silicon Valley envy from time to time, spoke to my buddy who moved and use to have a 5-10minute commute. Now he has a 2hr one way commute since he's trying to save money. Yet his rent is 50% more. I doubt he's saving more. He keeps trying to serenade me to move. I run the numbers, and I would have to make a whole lotta money for SV to be worth it. :-(

h4nkoslo 10y ago

It's really uninformative to look at average incomes or average prices anywhere, let alone someplace with as big of a spread as the Bay Area.

deleted 10y ago
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11thEarlOfMar 10y ago
Very true. In 2014, the average tech worker salary in San Mateo County was $291,497. But if you took out one specific tech worker, it dropped by $80,000 to $211,000. Mark Zuckerberg's income alone impacted the average by $80,000 across an entire county [0]. It impacted the median by, probably $0. Edit: For completeness; US Median Household Income: $51,939 [1] San Mateo County: $79,548 [2] Not quite as newsworthy... [0] http://valleywag.gawker.com/average-tech-wages-up-to-291-497-in-san-mateo-county-1625755095 http://valleywag.gawker.com/average-tech-wages-up-to-291-497... [1] https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=meadian+US+household+income https://www.google.com/webhp?sourceid=chrome-instant&ion=1&e... [2] http://citylab.news21.com/data/types/19/ http://citylab.news21.com/data/types/19/
- dublinben 10y ago
  This is why statistics on the "average" in a population are worthless. The meaningful statistic here is the median, which isn't subject to such skewing.
- stdbrouw 10y ago
  A nitpick, but "average" can refer to any sort of central tendency, whether it's the arithmetic mean, the harmonic mean, the median, the trimean or anything else.
  - jdale27 10y ago
    You may be technically correct regarding the common usage of the word "average". However, "average" is most commonly used to refer to the arithmetic mean. Using the word "average" to refer to the median is bad writing, and furthermore, using the arithmetic mean instead of the median to represent the "central tendency" of a distribution that is highly skewed and/or has extreme outliers is bad statistics. Journalists who are going to write about these things should know better.
    - stdbrouw 10y ago
      > Using the word "average" to refer to the median is bad writing It can be, but not necessarily. Otherwise, you'd have to say that the average Joe has 1.9 legs. Median or mode are much more natural in that context. Other than that, not trying to make any particular point, of course you're right that using the arithmetic mean is a lousy practice for many kinds of data.
chiefalchemist 10y ago
Yes and no. The fact remains, even with higher incomes, housing increases to mitigate the gains. I mean, in spite of all the income is anyone saying SF CA is an affordable place to live?

misnamed 10y ago

Housing is proportionally higher cost but many things aren't that much more expensive in the Bay, which helps cancels it out. Plus if you're willing to commute, rent and/or live with other people, it all helps (unlike that Yelp lady who got her own place, kept her car, etc...).

tptacek 10y ago
You are describing an area that is perfectly acceptable for unattached 20-somethings but more or less untenable for young families.
- blackguardx 10y ago
  Look at how families in the US were raised historically in big cities or even in the suburbs. People were happy with much less space than is considered "untenable" today.
  - tptacek 10y ago
    Do you really think this is a persuasive argument for raising a family in a shared 2-bedroom apartment?
    - blackguardx 10y ago
      No, but many people who want kids seem to think that they need so much space. Someone upthread lamented how small the housing stock in SFBay was at "only" an average of 1500 sq ft. That was the normal sized house 50 yrs ago regardless of how many kids there were.
      - tptacek 10y ago
        What's the median price of a 2bdr condo in SFBA right now? Because if you're planning to raise a family in SFBA, that's what you need. You can't rent it, because you can't routinely move small families --- changing school districts is incredibly disruptive for children --- and you would be somewhat lucky to keep a good 2bdr apartment for 5 years, let alone 12-15.

declan 10y ago

Silicon Valley wages would have to increase by something like 3x--or house prices would have to drop by over 50%--to make houses here as affordable as the national average. Neither is likely to happen. A median house in San Mateo County costs 11.3x median county income. A median house nationally costs only 3.3x median national income. So if you wish to buy a house in this area (and of course many people may prefer to rent), you should avoid moving here unless you can make those numbers work. The reality for homebuyers is a bit worse than even those numbers indicate. Income taxes in California are very high, and most of the SF and peninsula housing stock is older and smaller than the national average. The median San Mateo County home is 1500 sq. ft; the median national home is closer to 2,500 sq. ft. Construction, renovation, and maintenance costs are higher as well. Gas taxes are higher than the national average, sales taxes are higher, electricity costs are higher, etc. SF and peninsula municipalities have planning reviews that can add tens of thousands of dollars, plus state requirements (Title 24) and local requirements (no site development without survey, civil engineer, etc.) that add still more. Also geotechnical reviews and more expensive foundations--remember we're in earthquake country, folks. On the other hand, we have very pleasant weather. :) --- Sources: San Mateo County's median home value is $1.13M[1]. The county's median household income is approx. $100K[2]. A house costs 11.3x income. [1] http://www.zillow.com/san-mateo-ca/home-values/ http://www.zillow.com/san-mateo-ca/home-values/ [2] http://www.mercurynews.com/2014/08/28/can-working-class-families-afford- http://www.mercurynews.com/2014/08/28/can-working-class-fami... The national median home is $188K[3]. The median national household income is $56.5K[4]. A house costs 3.3x income. [3] http://www.huffingtonpost.com/2014/03/13/median-home-price-2014_n_4957604.html http://www.huffingtonpost.com/2014/03/13/median-home-price-2... [4] http://www.census.gov/newsroom/press-releases/2016/cb16-158.html http://www.census.gov/newsroom/press-releases/2016/cb16-158....

iaw 10y ago
For the price of an okay family home in an okay neighborhood of Palo Alto you can buy a villa in the South of France... I'm still not sure how to process that.
- x0x0 10y ago
  The whole thing really puts the lie to the myth engineers in the valley are well paid. In the land of million dollar entry level homes, even $200k of income (!!!) means you will struggle to own somewhere to live. That barely qualifies you for a $1m loan, and that with a $100k downpayment. I'm aware you can commute eg an hour plus each way from easy bay and find homes for $700k (a bargain!), but something has gone wildly wrong when supposedly well-paid employees can't afford an entry level home in the city they work in.

chiefalchemist 10y ago

Those in favor of a forced $15 min wage should take note. More money in The Market gives others the opportunity to see what increases it can bear. That is, to presume you can increase income and all other costs will remain fixed is naive.

RhodesianHunter 10y ago
Sure, but it's not like all costs will rise either. The question is whether there's a net benefit, and if you can definitively answer that you'll probably earn a Nobel.
StanislavPetrov 10y ago
You might have a point in we lived in a free market where the FED didn't spend $6+ Trillion (with a T) in the last 8 years alone to artificially prop up real estate and equity markets.
- forgetsusername 10y ago
  >You might have a point in we lived in a free market where the FED didn't spend $6+ Trillion (with a T) in the last 8 years alone The Fed didn't "spend" $6TT; they exchanged one asset for another that was in high demand. Also, do you have any idea how much wealth disintegrated in 2007-2008?
gjolund 10y ago
It is cute that you think we live in a free market.

CrocODundee 10y ago

And home prices are, what, 8x to 15x US average? You can buy a great house in Omaha for $150,000, a comparable home in the valley would run $2,500,000 or more. And yes, you can get a job in Omaha that pays well! Unfortunately, many people now have to treat the valley as a stepping stone, it's a gauntlet to endure long enough to make substantial money and then they have to get out. Get rich from options or some other liquidation event, then pack up and move to a place where cost of living is vaguely reasonable. For many people, the only way to stay in the valley longterm, establish a household, maybe have a family with kids, and comfortably afford a generic "middle class" standard of life, is with a truly significant payout, the type of payout that would define someone as "rich" elsewhere in the USA. I know this is uncomfortable and unpopular to discuss, and we're all very fortunate to even entertain such discussions especially compared to the hardships of most Americans and global citizens, but who in tech has not experienced this? Whether it's the enticement to go work in the valley for some theoretical payday, or the feeling you must leave once you reach X net worth otherwise you'll never be able to actually afford it?

MBlume 10y ago
Some people are trying to fix it: http://www.sfyimby.org/ http://www.sfyimby.org/
- muzz 10y ago
  They are well-intentioned but misguided about the true causes of housing shortage, which are more related to statewide factors like Prop 13 than local ones.
  - MBlume 10y ago
    No, pretty much all of them know prop 13's a serious problem. You can't repeal prop 13 except at the ballot, which would be pretty hard.
seanmcdirmid 10y ago
I know this might sound like a broken record, but a lot of people don't want to live in Omaha: it is a right-valued sprawling city with very four season weather. Compare SF to other west coast cities, and maybe even to a few east coast ones...but those more central midwest and mountain west cities have a very different lifestyle to consider.

jimmywanger 10y ago

It makes no sense these days to buy in the silicon valley. I was talking to some people renting out their house for about 3500 dollars a month. It's a single story ranch house (3 bed 2 bath) that they bought in the eighties for 150k. It's now worth about 1.5 million. Doing the math, a mortgage + insurance + property taxes on a 1.2 million dollar mortage (less 300k for the down payment) is about 7k. And rents should be inherently higher than house payments. Why would you buy when you could just rent, and not deal with any of the maintenance and stuff?

ethanbond 10y ago
Because those people you talked to are renting their house out at way below market rates (probably)? You can easily rent out a single bedroom for $1500-2500 anywhere near the more central SV hubs.
- jimmywanger 10y ago
  Two things. 1) Way below market rates: It is below market rates, but not that far below. This house is in west San Jose, and according to zillow and CL, they might be able to get 5k for it. Maybe. That's still far below the 7k mortage + property taxes, not to mention the investment income you could be making off the 300k you put up for a down payment. 2) Renter protection laws: The renter was introduced to them personally, and they were vouched for by a mutual friend. It is extraordinarily difficult to evict people in the bay area, even for non-payment of rent. The rentees are not professional property managers, they don't know the ins and outs of rental law, so they're willing to take a haircut. Having bad tenants in your property will easily wipe out 2k a month for 2 years. Edit: Of course they could hire a professional property manager, who would know all the laws and deal with bad tenants, but that would come right out of the bottom line. I don't know how much property managers charge, but then the trick is not to find a good tenant, but to find a good property manager. It would be like a non-technical cofounder looking to find a good engineer. Where would you even start?
  - jimmywanger 10y ago
    Oh, just for completeness. On Zillow (and we all know how accurate or not it is) the house apprasises for ~1.8 million. The zestimate for rent is about 4300. So not terribly under market.

ktRolster 10y ago

As long as there is more demand than supply, wages will never keep up with housing prices. It's a simple matter of math (the pigeon hole principle, actually).

esaym 10y ago
>> (the pigeon hole principle, actually). IE if there are 10 houses for rent and 11 people want to rent, there will be one house in which will have two people trying to rent it.. lol
- im4w1l 10y ago
  They could live in the same house.
dionidium 10y ago
The same principle explains why many rust belt cities have vast areas of abandoned tracts. It's not that they actually lost people. Regionally speaking, most of them didn't. But sprawl created new homes while not adding new families to live in the old ones. The math in both cases is pretty straightforward.

ChuckMcM 10y ago

I toured an open house in Sunnyvale yesterday to have a look at what $1.7M buys you these days. 1900 sq ft, four bedrooms, two and a half baths, a nicely remodeled kitchen and a small patch of yard. And I asked the realtors if they expected to get any offers. They already had offers but they are waiting until Monday to sit down and sift through them. And then the big question, could they describe the type of people buying these houses? The answer was couples where both parents worked in the tech industry with a combined income of over $300,000. Usually one child and often one on the way, many have houses already further away (Livermore, Gilroy, Morgan Hill) that they are selling. Now that is unscientific, it is the experience of one broker who is sitting in one open house, showing the house to prospective buyers and gently quizzing them on their financials in order to understand if they are good prospects or not. But I can see other evidence that its probably accurate, the folks moving into my neighborhood fit that profile. A lot of people looking for "good schools" because if you don't pay private school tuition that saves you $15,000 per kid per year you can put into house payments. My point being that the houses are being listed and sold in a short time frame. That suggests that the housing market is pricing appropriately for the buyers. That there are more buyers than houses pushes up the price and pushes out the buyers who do not earn as much. However, unlike San Francisco, there is a lot of residential building being put up on the peninsula and south toward San Jose. Across a wide spectrum from apartments to condos to single family attached, and single family detached. Sunnyvale has a ballot measure (https://sunnyvalepubliclandsact.com/ https://sunnyvalepubliclandsact.com/) that is seeking to limit how the city can transfer park land to developers to turn into houses (or hotels, or office parks). That measure is an artifact of all the building that is going on.

sandworm101 10y ago
>> My point being that the houses are being listed and sold in a short time frame. That suggests that the housing market is pricing appropriately for the buyers. I'd call that a seller's market. Houses may be selling quickly because of a lack of supply and elite buyers are moving asap. A buyer's market would be one where buyers are not in a hurry, one where houses stay on the market for a while, negating any need to bid high and fast. I'm currently in the ultimate seller's market (Vancouver, north shore) with a <1% rental vacancy rate and houses selling within hours. I laugh a little at the prices in the OP. 1.7m won't get you much in my neck of the woods. Some 35 new apartments (2Br 2Bath) in west van just pre-sold for 7.5m each. And they haven't even broken ground on the building. The city/province is starting to take drastic steps as the young flee and shops close. The market is in a bit of a panic, but that is what drastic steps were meant to do.

TheSageMage 10y ago

As a young(late 20's) Software Developer and San Francisco resident who loves the weather(who doesn't love yearly temp range of 50-70) and the city feeling(being able to walk/muni everywhere), what are some alternatives? My wife and I are DINK's, so the suburbs are too sleepy for us, and we've done the driving life style in the South, which we hated.

avar 10y ago
Similar situation and I like some of the same things, I went for Amsterdam. It's nice.
- akgerber 10y ago
  How do the wages compare? My impression is that they're significantly less in Europe.
jandrewrogers 10y ago
Seattle has similar temperature range and city living, probably about as close as you'll get to San Francisco in a city with tons of good tech jobs. I left my car in the Bay Area when I moved here and walk everywhere, the only time I drive is to go hiking and similar. Seattle is expensive but less so than the Bay Area. Lack of income tax in Seattle/Washington is huge if you make tech wages. My mortgage in downtown Seattle is less than the additional income taxes I would pay if I lived in California!
- TheSageMage 10y ago
  How are the local laws and politics? I feel like SF/CA have a lot of regressive housing policies that some other US cities are trying to adopt.
  - jandrewrogers 10y ago
    Much better than the Bay Area, they are throwing up high density construction about as fast as they can build it (there are about a hundred sky cranes over the city right now), both glass skyscrapers in the downtown core and mid-rise buildings (4-6 stories) in the immediately adjacent desirable neighborhoods like Capitol Hill. Minimal restrictions on new construction. Importantly, zoning is intentionally mixed, so a significant fraction of the population doesn't drive for much of anything unless they choose to move way into the suburbs and it is a very neighborhood-y city. When a building goes in, the lower floor is often restaurants/bars/retail/etc to allow everything to be local. This is important because Seattle's highways are at max capacity and they can't be expanded anymore due to geological limitations (surrounded by water, no unused land remaining). The only way to continue the insane pace of population growth is to build up in a way that minimizes the amount of driving required, so that is how they have been dealing with it.

ScottBurson 10y ago

One interesting question to ask is, where is all this money, that people are spending on housing, going? Owners of rental property are obviously doing well. The other group making out are people who have owned property here during the times that prices have been appreciating and who sell and move out of the area; anyone who buys the property after them has to make the now-inflated mortgage payments. And I think the question we should ask as a society is, is this how things should work? The reason property here has become so valuable, and continues to become even more valuable, doesn't have that much to do with the individual contributions of the property owners. Somebody has to own the real estate of the area, after all; from a societal standpoint it doesn't matter very much who that is. Rather, the value is being created by the local economy collectively. The reason Silicon Valley is such a great place to start a tech business is because of all the tech businesses that are already here, and all the people already working for them. Does it really make sense for property owners to receive such a large fraction of the value being created? And let's be clear: the property owners wind up with most of it. Those of us living in the Valley, and commanding salaries that sound positively royal to the rest of America, are not actually living much (or any) better than most Americans. Most of the additional value we create by working for these high-tech companies is being siphoned off by property owners. Even if you own property in the Valley, if you bought it recently, your mortgage payments are going to cover a large check written to one of the previous owners. Those familiar with the work of Henry George [0] will understand that I am summarizing his argument. If you live in the Bay Area, I urge you to read his work. I think the Bay Area desperately needs a land value tax system. Yes, it would change the character of the area. But that character is changing anyway. Short of forbidding newcomers from moving here -- and how would one do that? -- there's no way to stop continued urbanization. But, I understand that that's not happening anytime soon. This brings me to good old Prop. 13. Kim-Mai Cutler [1] points out that Prop. 13 disincentivizes cities from approving residential construction, since they realize more tax revenue from commercial buildings. Prop. 13 needs to be revised. The key change that is needed is that instead of limiting the amount of property taxes, we need to limit the tax payments only. Here's how that would work. The locality would impose whatever tax rate it saw fit, by whatever processes were in effect pre-Prop. 13. However, the homeowner's payment in a given year would be limited by the Prop. 13 formula. The locality would receive a lien on the difference, that lien not becoming due until the property is sold. This would allow localities to participate in the appreciation of property values; the windfall wouldn't all go to the property owner. Yet, it still protects those on fixed incomes from being forced out of their homes by property taxes -- the primary selling point of Prop. 13. [0] http://www.henrygeorge.org/pcontents.htm http://www.henrygeorge.org/pcontents.htm [1] https://techcrunch.com/2014/04/14/sf-housing/ https://techcrunch.com/2014/04/14/sf-housing/

y_u_no_rust 10y ago

SF transformed technology into a cancer.

noobermin 10y ago

At what point will the drive back to equilibrium occur, and hopefully rational free market actors figure out you can hack anywhere in the country and that there are many other places you can work or set up shop?

11thEarlOfMar 10y ago
It's just like Hollywood attracting actors, directors and producers. As long as there is the factor of prestige, Silicon Valley is going to continue to see this nearly unbelievable housing market. If there were a true tech crash, like the dot-com bubble bursting, we'd see a slow down. But in order for there to be a sustained weakening, Apple, Google, Facebook, and the Y Combinators of the valley will all have to see a substantial weakening in profitability. It's the high salaries they are able to pay to legions of workers that is primarily responsible for housing prices. That's what this article is about.
- noobermin 10y ago
  My point is hackers are idealistic supposed to be more rational--I was sarcastic in my post, but statistically, they should be more rational. I don't know if I need to break this to any of you, but you can hack on anything. I learned C on an island with a 28 kbps internet (that was metered). I didn't have to fly to SV to attend a code bootcamp and shell out hundreds to a thousand dollars. Also, the internet is a wonderful thing, being connected to people has never been easier. My point is that no Apple, et. al, you can't keep extracting heat from the system and violate the second law of thermodynamics, at some point, people will evaluate the costs and people will be more and more reluctant to relocate to SV just to have a shot.
  - 11thEarlOfMar 10y ago
    Allow me to say it a little differently, then. As long as profits flow to silicon valley companies from around the world, people from around the world will also flow there, and housing prices will increase. So I'd say that the heat is being extracted from the world's population (dollars from their pockets) and as long as that source is plentiful, the growth will continue. Since the global standard of living is increasing, the world's ability to buy iPhones and thereby consume Internet advertising presented by Google and Facebook, all continues to grow. Come to think of it, it may be self sustaining. How many HN readers came to SV with a job offer in hand? The more profitable the companies are, the bigger the delta between what SV pays and what the ROW pays and the more people will be willing to take the plunge. This could go on for a very long time. (Google + Apple + Facebook pre-tax profit = ~$20 billion in the last 3 months.)

dmourati 10y ago

We're shopping for a new home in Silicon Valley and are also considering picking up. Median home price in Mountain View for a single family home is around 1.7M. This price has about doubled in the past 5 years. The schools are variable as rated which also rules out some areas for us. We have a small child at home and need to find someplace to start him in public school. I think we will sit tight for a while and see what prices do. Most sites I've looked at call for a leveling off on price over the next year. This would help us increase the amount for our down payment and get into a property we could afford with decent schools. Luckily our rent is very low (<$2000 for a 2b).

LargeCompanies 10y ago

What's the starting salary for a front-end dev from jr to intermediate to sr. in the valley/san fran now? Here in the Mid-Atlantic it ranges from 60k to 150k.

autotune 10y ago
90K is the average according to glassdoor: https://www.glassdoor.com/Salaries/san-francisco-front-end-developer-salary-SRCH_IL.0,13_IM759_KO14,33.htm https://www.glassdoor.com/Salaries/san-francisco-front-end-d... You really can't afford to make less than 100K out here though unless you can stand roommates.
phamilton 10y ago
Small well funded startup: 100k-180k salary plus equity Google (similar at other big cos): 160k-350k total comp (salary, bonus, restricted stock units)
gjolund 10y ago
I pulled 150k to 225k from 2009 to 2014.

swframe 10y ago

What if large companies built on-campus employee housing on top of their parking lots and moved the parking lots below ground? They could make a "corporate" city by adding a mall, hospital, child care/schooling. Imagine being able to have lunch with your family everyday; having a 15 minute walk to work.

skybrian 10y ago
Zoning often prevents it. Only recently did Mountain View approve housing north of 101.
thirdsun 10y ago
Would your housing be tied to your employment? Most people probably prefer the option to change jobs without losing their home.

siculars 10y ago

What this article and many of the comments fail to mention is the supply side of the conversation. If you drive south from San Fran to San Jose you can probably count all the building more than 10 stories along the way. This price spike is entirely manufactured by the policies of those already living in this region.

partycoder 10y ago

Rent, in combination with California taxes, and cost of living, makes it very challenging to save in comparison to other states.

Tempest1981 10y ago

Then this today -- wonder why? "New report shows rents falling in San Jose, San Francisco" http://www.mercurynews.com/2016/09/25/new-report-shows-rents-falling-in-san-jose-and-san-francisco/ http://www.mercurynews.com/2016/09/25/new-report-shows-rents...

gjolund 10y ago

The only way I would live in SF again is in a van. There is no reason to throw your money away on that housing market, just bank your salary and count the days until you leave.

geebee 10y ago

The valley and SF need to build more, but eventually we need to accept that many talented technology workers will neither wish to nor be able to live in a small peninsula in central northern California. High tech companies will change then they need to change. If they find that they are not able to access a high quality workforce in the numbers they need unless they allow their workforce to live in other areas, and they lose out to competitors who do allow this, they will change. I've been beating a drum here on HN, and I know that people are probably getting tired of hearing about it, but here it goes again... we must not allow employers to control the residency and work rights of their employees. All workers, technology and otherwise, immigrant or born in the US, must be free to pursue their educational path, career path, and place of employment according to market signals and their own personal interests and abilities. Anything else, at scale, will produce harmful market distortions and is an affront to personal freedom. If employees who have the right to make this choice are not choosing to subject themselves to brutal housing costs in spite of salaries that silicon valley employers insist are at shortage-indicating highs, that's the market's answer. We should welcome immigrants, but we should not welcome Facebook's control over an immigrant's right to decide what to study, where to work, or what profession to choose as a condition of coming to the united states. As long as corporations have this coercive power over individuals on a large scale, expect nothing to change. Remarkably, the corporations who lobby for this sort of massive personal power over technical workers often wear the halo of being "pro-immigrant". "You may live and work in the United States provided that you take the technical interview exams I insist you take, study the fields I insist you study, live in the high cost region I insist you live in, work on the projects I insist you work on, for the salary I've decided is fair". Why do they get away with this?

dragonwriter 10y ago

> Bay Area wages soaring but still can’t keep up with housing prices Wages are soaring because businesses are trying to hire people faster than local supply of talent can respond, driving up the market clearing price of labor. But that means that people are making more in the Bay Area, and there are more of them working (and thus, wanting to live) in the Bay Area -- both of which are factors driving up demand for housing, and thus price. Its thus unsurprising that the wages can't keep up with housing prices, since they are one of several means by which housing prices are being driven up.