10 ms·

There's a sort of ugly urban cycle. First, you get an interesting place. Then interesting people move in. These interesting people do interesting things. Wages

by api 14y ago

There's a sort of ugly urban cycle. First, you get an interesting place. Then interesting people move in. These interesting people do interesting things. Wages go up. Money moves in. Then you have real-estate hyperinflation, and the place becomes unaffordable to anyone who isn't already rich or grandfathered in. Trouble is: the next wave of interesting people usually start out as starving artists/hackers/entrepreneurs just like the previous wave did. It's almost as if regional success beyond a certain point accomplishes nothing but inflating real estate, which redirects further success into keeping that real estate bubble inflated. This primarily benefits banks. Imagine what would happen if this didn't happen... imagine living in a place as inexpensive as a medium-sized Midwestern city, but with Silicon Valley salaries. Imagine how many other places that wealth could go: more startups, more gadgets, better infrastructure, world-class everything, better health care, even generosity. But nope, real estate just soaks up wealth beyond a certain point and redirects it back into the financial pyramid. Sometimes a place is so unbelievably interesting, like New York, that people are willing to live in a catbox in order to be there. But even then people have a tendency to get sick of this after a while, and anyone contemplating reproducing or wanting to do anything that requires space is out of luck and has to leave.

Tipzntrix 14y ago
I think part of the reason salaries are so high is that employers have to compete with these costs. If the real estate price / cost of living went down, salaries would be down as well. There is quite a bit of data showing that Bay Area salaries are higher than anywhere else in this industry.
- iyulaev 14y ago
  How much of it is baked into the cost of living? If my rent is 30% of my salary, and I'm looking at a job that pays 30% more but the rent is double in the area, isn't it a wash?
  - khuey 14y ago
    No, it's probably actually a negative, because that new 30% is almost certainly taxed at a higher rate than your current salary.
    - drstewart 14y ago
      Or perhaps it's actually a positive, considering you no longer have to spend money on car payments, gas, inspections, fees, tolls, maintenance...
      - khuey 14y ago
        Sure, that's possible. When I moved to San Francisco I traded my car for a MUNI pass (and eventually a bicycle) which saved me a lot of money. A few months ago I tallied up how much my parents pay for housing + energy + transportation and how much I do, and the amounts are roughly the same, except I spend almost all of it on housing and they spend a lot on energy and transportation. That said, most people who move to SF don't give up their cars.
      - iyulaev 14y ago
        SF isn't the only city where you can live car-free ;) Also, cars are, sadly, much cheaper than houses. My spouse and I share a car and the TCO is not anywhere near our rent. At least an order of magnitude, maybe two.
mapgrep 14y ago
That's not an ugly urban cycle, that's progress! Rents and real estate prices go up, prompting new development and increasing density. Much of San Francisco, even near(south of) the downtown core is 3-5 story industrial buildings and parking lots ripe to be turned to high-density use. Right now this "ugly urban cycle" has Twitter and a VC firm moving into the shady Mid-Market neighborhood next to the Tenderloin (Benchmark Capital is literally next door to s trip club) with other startups hot on their heels. This is a good thing. An "ugly urban cycle" is not when property values rise and people move IN to the city, it's when people flee to the suburbs (see: Detroit, or most U.S. cities in the 1960s). That said, I agree it's annoying that people tend to pile into city in herds, because it takes on the order of 5 years for real estate to be approved and built to meet demand, and by then there's often been a reversal and you get a flood of supply at exactly the wrong time. But that's actually good for the city too - lots of new housing at low cost. The problem isn't real estate, it's people - our herd instincts and inconvenient relocation patterns. Similarly, the solution isn't to try and divert money people _choose_ to spend living in preferable locations into health care (where inefficiency and costs are already too high) or "gadgets" (what?) but to get better ways of mitigating the discrepancy in speed between how populations shift and how long it takes to develop new places for people to live. (PS Downtown Oakland is fantastic and still cheap. Maybe if SF rents get high enough people will get over their hangups about a demographically young downtown with bustling nightlife that's 5 minutes by BART from SOMA) (PPS You'll notice implicit in my comments is the fact that real estate developers do NOT reliably get rich as the result of a boom. It takes 5 years or more to entitle and build an urban mid- or high-rise housing development, which means it's a crapshoot whether a boom will be on when you're done. In fact developers can go broke if they build now assuming the economy will stay hot because if it's cooled when they are on the market selling they'll miss their numbers. The people who make money in the boom are existing owners who sell and landlords who can jack up rents. As it happens these are the same people who will take a bath when things cool off again.)
- lambdasquirrel 14y ago
  I will say that people are flocking to the suburbs. Many of the artists, yogis and writers I know have chosen to live in places like Oakland and Santa Clara. Not that your usual get-rich hacker would care.
iyulaev 14y ago
Re: real estate prices, go read "The Rent Is Too Damn High" by Yglesias. Yes, it's a problem. And regulation is a big, big part of it. Also, there are plenty of places where you can make money working in tech and have a relatively low cost of living. Austin, San Diego, Spokane, even Seattle isn't too expensive, compared to the bay area.
- seanmcdirmid 14y ago
  Which one of these cities doesn't fit.....Spokane? Since most of my family lives there, I would love to hear about tech opportunities there compared to...Austin, San Diego, and Seattle.
  - iyulaev 14y ago
    F5 networks has their h/w design out there.
    - seanmcdirmid 14y ago
      That doesn't really make for a tech scene, as much as I would love for that to be true. I couldn't go to Spokane and a get anywhere near a comparable job as I could in Seattle. Even Salt Lake City has a better tech scene. Spokane lacks a flagship university, unlike the other cities.
tthomas48 14y ago
One thing you left out is that people make laws to try to stop people from moving in. Those laws make it harder to build which does not stop people from moving in, but makes housing more scarce which leads to higher prices. What would San Francisco look like right now if they'd allowed high rises to be built for the past 30 years?
rayiner 14y ago
A lot of the pain is self-inflicted in San Francisco's case, from idiotic zoning. I'd day Chicago is a reasonably interesting place, interesting enough for 3 million people to live there, and our real estate is pretty affordable. The problem with SF and NY is that the people living there are selfish and want to pull up the ladder behind them. They like their cute little low rise buildings and won't allow new high density housing to be built.
- anigbrowl 14y ago
  SF is on a peninsula and Manhattan's an island. Chicago is relatively low-rise as well, but there's a lot more land in back of it. I hate the SF planning process, but there's no question that the city's growth is partly constrained by geography.
  - dr_doom 14y ago
    Yes but over 1/3 of the city population is concentrated in the lakefront neighborhoods. Everywhere you look there are shiny, new condos and apartment buildings. I am thinking of moving to the Chi and was surprised that rent is less than half of the average bay area price. A lot of craigslist ads even tell applicants that they require a check for eviction court as part of their deposit. In total contrast to SF's rent controls.
    - tptacek 14y ago
      (1) Nobody calls it that. (2) Definitely move here. Chicago is a fantastic city and the reason you don't hear about it more is that it's underrated. If there's a kind of neighborhood you're interested in living in, I'm happy to help point you in the right direction. You should have no trouble finding a place.
  - khuey 14y ago
    SF's growth is limited far more by humans than it is by nature.
    - 14y ago
jessedhillon 14y ago
... imagine living in a place as inexpensive as a medium-sized Midwestern city, but with Silicon Valley salaries. I'm imagining myself waking up every morning wondering what good it is to be making $XX0,000 if I have to live in this place. My cousin makes ~$220,000 in Yakima WA as a doctor -- her main expenses are weekly flights to NYC. The reason why people want to be in big cities is because other people are there -- supply and demand explains the high prices. I came from Sacramento, but I wouldn't live there for even double my salary because nobody is doing anything interesting there. The startup scene is non-existent and there are no major universities turning out bright minds. Just more fat people having kids at age 22. Or are you asking why a SF-style city can't be as inexpensive as Topeka? To that, I would answer: because nobody wants to be in Topeka.
- pnathan 14y ago
  This is really a good point. Unless you're ready to disconnect in real life, living outside the hubs for your tribe is not terrifically great. Believe me, I live that. :-)
- rayiner 14y ago
  SF isn't a mega-city by any means. It's the 14th largest in the country (between Austin and Columbus). An SF-style city can't be as inexpensive as Topeka. But it could be as inexpensive as Philadelphia or Boston.
  - pjlegato 14y ago
    San Francisco is the only major city in the US where you a) don't need a car and b) there's no snow. Apparently, lots of people highly value these (and other) factors, enough so that it cannot be as cheap as Philadelphia or Boston. It's not a question of what would be nice. It's a question of supply and demand.
    - rayiner 14y ago
      It is a matter of supply and demand, and while demand in SF is high, it's nothing like say NYC or LA where there are millions of people looking for housing. SF is a medium-sized city as far as cities go. It's a growing city, unlike many, but in the last ten years it grew slower than Boston, DC, Portland, Seattle, San Diego, and Miami. It's not like developers can't build housing quickly enough to keep up with all the demand. It's that the city won't let them.
eli_gottlieb 14y ago
Imagine what would happen if this didn't happen... imagine living in a place as inexpensive as a medium-sized Midwestern city, but with Silicon Valley salaries. Imagine how many other places that wealth could go: more startups, more gadgets, better infrastructure, world-class everything, better health care, even generosity. But nope, real estate just soaks up wealth beyond a certain point and redirects it back into the financial pyramid. That sounds at least a little bit like where I live now. We don't have SV-level salaries, but the tech industry can pay roughly $60k-$80k per year in a place where $45k is the median dual-income household and $33k is fairly comfortable for a single adult. A few key differences from, say, most of the United States, that I think can transfer over to other places without getting into local culture: * There's no state/provincial/regional government, except in rural areas, where a group of villages is governed by a regional council. If you live in a city, you've got the municipality and then the national government. One less layer of abstraction, and the municipality is entitled to take decisions that in the USA would fall to the state-level government. * The municipality levies "arnona" (our word for the old English "rates" system) as a tax on the square-meterage of dwelling units. The occupant pays the tax, but like a VAT, the arnona is factored in as part of the price you pay for a rental unit. The effect is to discourage the development of very large dwellings in favor of dense buildings full of smaller dwellings. The other effect is that we don't have conflicts over assessments of property values, because they're not taxed. Living in a beautiful, well-located house won't stick you with extra property taxes unless the city specifically decides to zone your area for a higher per-square-meter rate. It works pretty decently, overall, although there is a problem of schools being underfunded (though this may be a political/national problem rather than structural). * Urban planning here is pro-urban rather than anti-urban like in the States. The typical family dwelling is a three-bedroom apartment (one master bedroom for the parents, one bedroom each for your two children), building is planned in terms of semi-self-contained neighborhoods, and zoning consistently sprinkles in a certain amount of parks, a certain amount of schools and clinics, a certain amount of community centers and houses of worship, a certain amount of sports fields, and a certain amount of mixed-usage residential/commercial/office space per neighborhood. * Public transit here is not just for poor people. Bus and minibus systems operate extensively, including between cities, and there's also a coastal intercity rail line and a small subway that goes up and down the mountain we're built atop. I estimate I can reach anywhere in this city that I might work within 30 minutes of automotive commuting, 30-60 minutes on the bus system, and that's if I can't actually walk to it. * NIMBY is not a thing here. Period. Only major real-estate developers go around actually thinking their land holdings are so freaking important that they should have the power to block other people's projects, particularly municipally-sponsored ones. There are whole neighborhoods built around the shipping port, the oil refinery, and the High-Tech Park where the BigCos live. * As far as I know, you can't actually build things outside cities or towns. The countryside is countryside, and nobody is necessarily entitled to land rent or real-estate tax from it. So big things like tech parks and office buildings get built in cities, because you have to build them inside some municipality recognized by the national government and once you have that requirement, you might as well put it near your prospective employees and customers. TL;DR: No, cities and urban living do not innately cause ultra-high real-estate prices. Yes, public policy matters, because urban planning, transit infrastructure, land taxation, and a strength of property titles appropriate to urban life all provide rules and incentives for building a city that's actually nice to live in. There is absolutely no reason a place like Silicon Valley can't make itself a very nice and even affordable place to live, except that the existing residents enjoy feeling privileged. They get to feel privileged, because in SV and in many other desirable American places (Boston-Cambridge and New York City come to mind), real-estate has become a status good with a permanently fixed supply. They'd feel somehow insulted to find out that their land is a mere commodity, to be bought and sold in bulk as common families want or need.
pjlegato 14y ago
The problem with this theory is that in the hypothetical midwestern city you describe, there is no incentive for anyone to pay Silicon Valley salaries. Everyone can live on less money, so that sets the baseline. Premiums or discounts are applied to that based on the rarity of the employee's skill set. If you're running a company, you have a limited amount of capital to work with. Your pay scale is determined by the markets you operate in - the prices competitors are paying for employees, and the prices competitors are charging for their product or service. You can't just say, "Well, I'm generous, I'm going to pay a million dollars a year to all of my employees." You'll be bankrupt in a month that way. The real estate price inflation you describe is a side effect of this process, not a main element. With the exception of situations where external capital enters the system to finance a bubble, as in much of the US and Spain in the early 2000s, it's the sign of a healthy local economy where functioning businesses can employ large numbers of people because they're all generating enough cashflow to do so. The alternative scenario -- Detroit -- is far, far uglier.
- api 14y ago
  Interesting that you bring up Detroit. Detroit once had the highest salaries in the US from the auto industry, and priced out everyone not involved in the auto industry. Then the auto industry crashed. That's not the only reason Detroit crashed, but it's a contributing factor. The others were racism and "white flight." Detroit sort of got a perfect storm. If something ever does massively disrupt Silicon Valley, I could see the Bay Area undergoing a nasty crash too. Probably nowhere near as bad as Detroit since it's a prettier place to live and is more diversified, but still ugly. SV today really doesn't appeal to me because it is nothing but hackers. There are no artists, no hippie bohemian weirdos, no writers. These people can't afford to live there. In fact, I'd say it's even worse. There aren't even many hackers doing truly creative projects outside startups running around looking for funding, because you can't do anything that isn't going to get you that big cash out effect. Not if you want to afford to live there. You also can't easily bootstrap without outside funding, which means you can't own your own stuff. You have to have a financier with deep pockets. All of that is the fault, primarily, of real estate hyperinflation.
dredmorbius 14y ago
It's rather like the online discussion site cycle in many regards.
rockoutmtl 14y ago
Thank you for explaining supply and demand. I tend to believe these places become interesting due to the fact that so many people live there. There's bound to be interesting people based on sheer numbers. Keep in mind NY and SF were founded on industrial business and immigration; not founded on interesting people.

by api 14y ago

Tipzntrix 14y ago

I think part of the reason salaries are so high is that employers have to compete with these costs. If the real estate price / cost of living went down, salaries would be down as well. There is quite a bit of data showing that Bay Area salaries are higher than anywhere else in this industry.

iyulaev 14y ago
How much of it is baked into the cost of living? If my rent is 30% of my salary, and I'm looking at a job that pays 30% more but the rent is double in the area, isn't it a wash?
- khuey 14y ago
  No, it's probably actually a negative, because that new 30% is almost certainly taxed at a higher rate than your current salary.
  - drstewart 14y ago
    Or perhaps it's actually a positive, considering you no longer have to spend money on car payments, gas, inspections, fees, tolls, maintenance...
    - khuey 14y ago
      Sure, that's possible. When I moved to San Francisco I traded my car for a MUNI pass (and eventually a bicycle) which saved me a lot of money. A few months ago I tallied up how much my parents pay for housing + energy + transportation and how much I do, and the amounts are roughly the same, except I spend almost all of it on housing and they spend a lot on energy and transportation. That said, most people who move to SF don't give up their cars.
    - iyulaev 14y ago
      SF isn't the only city where you can live car-free ;) Also, cars are, sadly, much cheaper than houses. My spouse and I share a car and the TCO is not anywhere near our rent. At least an order of magnitude, maybe two.

mapgrep 14y ago

That's not an ugly urban cycle, that's progress! Rents and real estate prices go up, prompting new development and increasing density. Much of San Francisco, even near(south of) the downtown core is 3-5 story industrial buildings and parking lots ripe to be turned to high-density use. Right now this "ugly urban cycle" has Twitter and a VC firm moving into the shady Mid-Market neighborhood next to the Tenderloin (Benchmark Capital is literally next door to s trip club) with other startups hot on their heels. This is a good thing. An "ugly urban cycle" is not when property values rise and people move IN to the city, it's when people flee to the suburbs (see: Detroit, or most U.S. cities in the 1960s). That said, I agree it's annoying that people tend to pile into city in herds, because it takes on the order of 5 years for real estate to be approved and built to meet demand, and by then there's often been a reversal and you get a flood of supply at exactly the wrong time. But that's actually good for the city too - lots of new housing at low cost. The problem isn't real estate, it's people - our herd instincts and inconvenient relocation patterns. Similarly, the solution isn't to try and divert money people _choose_ to spend living in preferable locations into health care (where inefficiency and costs are already too high) or "gadgets" (what?) but to get better ways of mitigating the discrepancy in speed between how populations shift and how long it takes to develop new places for people to live. (PS Downtown Oakland is fantastic and still cheap. Maybe if SF rents get high enough people will get over their hangups about a demographically young downtown with bustling nightlife that's 5 minutes by BART from SOMA) (PPS You'll notice implicit in my comments is the fact that real estate developers do NOT reliably get rich as the result of a boom. It takes 5 years or more to entitle and build an urban mid- or high-rise housing development, which means it's a crapshoot whether a boom will be on when you're done. In fact developers can go broke if they build now assuming the economy will stay hot because if it's cooled when they are on the market selling they'll miss their numbers. The people who make money in the boom are existing owners who sell and landlords who can jack up rents. As it happens these are the same people who will take a bath when things cool off again.)

lambdasquirrel 14y ago
I will say that people are flocking to the suburbs. Many of the artists, yogis and writers I know have chosen to live in places like Oakland and Santa Clara. Not that your usual get-rich hacker would care.

iyulaev 14y ago

Re: real estate prices, go read "The Rent Is Too Damn High" by Yglesias. Yes, it's a problem. And regulation is a big, big part of it. Also, there are plenty of places where you can make money working in tech and have a relatively low cost of living. Austin, San Diego, Spokane, even Seattle isn't too expensive, compared to the bay area.

seanmcdirmid 14y ago
Which one of these cities doesn't fit.....Spokane? Since most of my family lives there, I would love to hear about tech opportunities there compared to...Austin, San Diego, and Seattle.
- iyulaev 14y ago
  F5 networks has their h/w design out there.
  - seanmcdirmid 14y ago
    That doesn't really make for a tech scene, as much as I would love for that to be true. I couldn't go to Spokane and a get anywhere near a comparable job as I could in Seattle. Even Salt Lake City has a better tech scene. Spokane lacks a flagship university, unlike the other cities.

tthomas48 14y ago

One thing you left out is that people make laws to try to stop people from moving in. Those laws make it harder to build which does not stop people from moving in, but makes housing more scarce which leads to higher prices. What would San Francisco look like right now if they'd allowed high rises to be built for the past 30 years?

rayiner 14y ago

A lot of the pain is self-inflicted in San Francisco's case, from idiotic zoning. I'd day Chicago is a reasonably interesting place, interesting enough for 3 million people to live there, and our real estate is pretty affordable. The problem with SF and NY is that the people living there are selfish and want to pull up the ladder behind them. They like their cute little low rise buildings and won't allow new high density housing to be built.

anigbrowl 14y ago
SF is on a peninsula and Manhattan's an island. Chicago is relatively low-rise as well, but there's a lot more land in back of it. I hate the SF planning process, but there's no question that the city's growth is partly constrained by geography.
- dr_doom 14y ago
  Yes but over 1/3 of the city population is concentrated in the lakefront neighborhoods. Everywhere you look there are shiny, new condos and apartment buildings. I am thinking of moving to the Chi and was surprised that rent is less than half of the average bay area price. A lot of craigslist ads even tell applicants that they require a check for eviction court as part of their deposit. In total contrast to SF's rent controls.
  - tptacek 14y ago
    (1) Nobody calls it that. (2) Definitely move here. Chicago is a fantastic city and the reason you don't hear about it more is that it's underrated. If there's a kind of neighborhood you're interested in living in, I'm happy to help point you in the right direction. You should have no trouble finding a place.
- khuey 14y ago
  SF's growth is limited far more by humans than it is by nature.
  - 14y ago

jessedhillon 14y ago

... imagine living in a place as inexpensive as a medium-sized Midwestern city, but with Silicon Valley salaries. I'm imagining myself waking up every morning wondering what good it is to be making $XX0,000 if I have to live in this place. My cousin makes ~$220,000 in Yakima WA as a doctor -- her main expenses are weekly flights to NYC. The reason why people want to be in big cities is because other people are there -- supply and demand explains the high prices. I came from Sacramento, but I wouldn't live there for even double my salary because nobody is doing anything interesting there. The startup scene is non-existent and there are no major universities turning out bright minds. Just more fat people having kids at age 22. Or are you asking why a SF-style city can't be as inexpensive as Topeka? To that, I would answer: because nobody wants to be in Topeka.

pnathan 14y ago
This is really a good point. Unless you're ready to disconnect in real life, living outside the hubs for your tribe is not terrifically great. Believe me, I live that. :-)
rayiner 14y ago
SF isn't a mega-city by any means. It's the 14th largest in the country (between Austin and Columbus). An SF-style city can't be as inexpensive as Topeka. But it could be as inexpensive as Philadelphia or Boston.
- pjlegato 14y ago
  San Francisco is the only major city in the US where you a) don't need a car and b) there's no snow. Apparently, lots of people highly value these (and other) factors, enough so that it cannot be as cheap as Philadelphia or Boston. It's not a question of what would be nice. It's a question of supply and demand.
  - rayiner 14y ago
    It is a matter of supply and demand, and while demand in SF is high, it's nothing like say NYC or LA where there are millions of people looking for housing. SF is a medium-sized city as far as cities go. It's a growing city, unlike many, but in the last ten years it grew slower than Boston, DC, Portland, Seattle, San Diego, and Miami. It's not like developers can't build housing quickly enough to keep up with all the demand. It's that the city won't let them.

eli_gottlieb 14y ago

Imagine what would happen if this didn't happen... imagine living in a place as inexpensive as a medium-sized Midwestern city, but with Silicon Valley salaries. Imagine how many other places that wealth could go: more startups, more gadgets, better infrastructure, world-class everything, better health care, even generosity. But nope, real estate just soaks up wealth beyond a certain point and redirects it back into the financial pyramid. That sounds at least a little bit like where I live now. We don't have SV-level salaries, but the tech industry can pay roughly $60k-$80k per year in a place where $45k is the median dual-income household and $33k is fairly comfortable for a single adult. A few key differences from, say, most of the United States, that I think can transfer over to other places without getting into local culture: * There's no state/provincial/regional government, except in rural areas, where a group of villages is governed by a regional council. If you live in a city, you've got the municipality and then the national government. One less layer of abstraction, and the municipality is entitled to take decisions that in the USA would fall to the state-level government. * The municipality levies "arnona" (our word for the old English "rates" system) as a tax on the square-meterage of dwelling units. The occupant pays the tax, but like a VAT, the arnona is factored in as part of the price you pay for a rental unit. The effect is to discourage the development of very large dwellings in favor of dense buildings full of smaller dwellings. The other effect is that we don't have conflicts over assessments of property values, because they're not taxed. Living in a beautiful, well-located house won't stick you with extra property taxes unless the city specifically decides to zone your area for a higher per-square-meter rate. It works pretty decently, overall, although there is a problem of schools being underfunded (though this may be a political/national problem rather than structural). * Urban planning here is pro-urban rather than anti-urban like in the States. The typical family dwelling is a three-bedroom apartment (one master bedroom for the parents, one bedroom each for your two children), building is planned in terms of semi-self-contained neighborhoods, and zoning consistently sprinkles in a certain amount of parks, a certain amount of schools and clinics, a certain amount of community centers and houses of worship, a certain amount of sports fields, and a certain amount of mixed-usage residential/commercial/office space per neighborhood. * Public transit here is not just for poor people. Bus and minibus systems operate extensively, including between cities, and there's also a coastal intercity rail line and a small subway that goes up and down the mountain we're built atop. I estimate I can reach anywhere in this city that I might work within 30 minutes of automotive commuting, 30-60 minutes on the bus system, and that's if I can't actually walk to it. * NIMBY is not a thing here. Period. Only major real-estate developers go around actually thinking their land holdings are so freaking important that they should have the power to block other people's projects, particularly municipally-sponsored ones. There are whole neighborhoods built around the shipping port, the oil refinery, and the High-Tech Park where the BigCos live. * As far as I know, you can't actually build things outside cities or towns. The countryside is countryside, and nobody is necessarily entitled to land rent or real-estate tax from it. So big things like tech parks and office buildings get built in cities, because you have to build them inside some municipality recognized by the national government and once you have that requirement, you might as well put it near your prospective employees and customers. TL;DR: No, cities and urban living do not innately cause ultra-high real-estate prices. Yes, public policy matters, because urban planning, transit infrastructure, land taxation, and a strength of property titles appropriate to urban life all provide rules and incentives for building a city that's actually nice to live in. There is absolutely no reason a place like Silicon Valley can't make itself a very nice and even affordable place to live, except that the existing residents enjoy feeling privileged. They get to feel privileged, because in SV and in many other desirable American places (Boston-Cambridge and New York City come to mind), real-estate has become a status good with a permanently fixed supply. They'd feel somehow insulted to find out that their land is a mere commodity, to be bought and sold in bulk as common families want or need.

pjlegato 14y ago

The problem with this theory is that in the hypothetical midwestern city you describe, there is no incentive for anyone to pay Silicon Valley salaries. Everyone can live on less money, so that sets the baseline. Premiums or discounts are applied to that based on the rarity of the employee's skill set. If you're running a company, you have a limited amount of capital to work with. Your pay scale is determined by the markets you operate in - the prices competitors are paying for employees, and the prices competitors are charging for their product or service. You can't just say, "Well, I'm generous, I'm going to pay a million dollars a year to all of my employees." You'll be bankrupt in a month that way. The real estate price inflation you describe is a side effect of this process, not a main element. With the exception of situations where external capital enters the system to finance a bubble, as in much of the US and Spain in the early 2000s, it's the sign of a healthy local economy where functioning businesses can employ large numbers of people because they're all generating enough cashflow to do so. The alternative scenario -- Detroit -- is far, far uglier.

api 14y ago
Interesting that you bring up Detroit. Detroit once had the highest salaries in the US from the auto industry, and priced out everyone not involved in the auto industry. Then the auto industry crashed. That's not the only reason Detroit crashed, but it's a contributing factor. The others were racism and "white flight." Detroit sort of got a perfect storm. If something ever does massively disrupt Silicon Valley, I could see the Bay Area undergoing a nasty crash too. Probably nowhere near as bad as Detroit since it's a prettier place to live and is more diversified, but still ugly. SV today really doesn't appeal to me because it is nothing but hackers. There are no artists, no hippie bohemian weirdos, no writers. These people can't afford to live there. In fact, I'd say it's even worse. There aren't even many hackers doing truly creative projects outside startups running around looking for funding, because you can't do anything that isn't going to get you that big cash out effect. Not if you want to afford to live there. You also can't easily bootstrap without outside funding, which means you can't own your own stuff. You have to have a financier with deep pockets. All of that is the fault, primarily, of real estate hyperinflation.

dredmorbius 14y ago

It's rather like the online discussion site cycle in many regards.

rockoutmtl 14y ago

Thank you for explaining supply and demand. I tend to believe these places become interesting due to the fact that so many people live there. There's bound to be interesting people based on sheer numbers. Keep in mind NY and SF were founded on industrial business and immigration; not founded on interesting people.