In Silicon Valley $37K/Year May Mean Public Housing

flanksteak sent us this U.S. News and World Report story about head-shakingly high Silicon Valley housing prices. A local homeless shelter administrator is quoted as saying, "We're serving firemen, cops, and teachers. We even have the human-resource departments of some of our biggest companies calling us, asking,'Can you get this employee into your shelter?'"

Comments

Re:High Prices of Real-Estate...

[Gromer]

The sale price of a house is an almost purely fictional value.

No more or less so than any other price. The price of housing, like the price of pork bellies or any other commodity, is just exactly the equilibrium value between supply and demand. Things cost what they cost because that's how much people will pay in order to maximize the profit of the buyer and the seller. There is no more "real" quanitity underlying price. If you want to put it that way, all prices are "almost purely fictional."

So, of course they want to sell it for as much as possible.

Uhm, real estate is not exactly unique in this respect. Where I come from, people who sell things generally do so because they want to make money. When I buy a sandwitch from the deli, they want to sell it for as much as possible. As it turns out, "as much as possible" turns out to be about $4.50, because if they charged any more, the losses from people who don't buy sandwitches will outweigh the gains from the increased price. Ditto real estate. The only difference is that people want a house a LOT more than they want roast beef on sourdough, and that difference in desire maps directly onto an increase in price.

There hasn't been enough of a tangible change in that property to justify it's suddenly increased value.

Yes there has. Silicon Valley has suddenly become a black hole of employment for anyone under 30 with a university education. It's nearly impossible to work in Silicon Valley if you live in New York. Therefore lots of people want to buy houses in S.V. More people want it, therefore it is more valuable. That's all there is to it. If a real estate prices a house at more than it's worth, the agent will get offers that are below the asking price. If the agent won't sell for less than the asking price, the buyers will go buy a house fron another, more reasonable agent, who will soon be much richer than the first one.

You keep referring to "the concrete value" of a thing, as though there really were such a thing, outside of how much people will pay for it. There isn't. Take gold. What is the concrete value of a gold bar? Can a chemist measure it's "concrete value" with the right tools? What are it's units of measure (in metric, of course)? The price of gold has been falling for years. Is there some undocumented physical process going on by which the "concrete value" is seeping out of the world's gold? Of course not. There's no such thing as "concrete value." There's just "value." It's units of measure are Dollars (or Yen or Pounds or Euros or whatever), and the only way to measure value is to try and sell it and see what people will pay.

You're right, liquidating MS would not produce $500 billion in assets if liquidated right now. But so what? The people who are paying for Microsoft stock think it's worth $500 billion, and so it is. Part of their calculation of that value is that Microsoft is extremely unlikely to totally liquidate itself in the near (or even long-term) future. It may be broken up by the courts, but that arguably will not result in the destruction of that much value.

Very Complex Problem

[ewhac]

Welcome to the dark side of the free market.

It's not like everyone out here is gouging. In fact, it's all too easy to find stories of people putting their house up for sale and receiving offers above the asking price. Interest rates are low, money is plentiful (for the moment), and housing is in very short supply, so prices are high for those units that are available.

Apart from building more houses and easing the space crunch, it's difficult to see how this problem could be addressed. I can assure you rent control will not go over well here. It's also difficult to make the ethical case that some outside agency (government, whatever) should be able to tell people what they can/can't accept for their property.

However, one of the Bay Area's hallmarks is its commitment to open space preservation and well-planned, environmentally sensitive growth. So it's not really possible to plop a couple thousand housing units on a vacant sector of land. One needs only to look at the Los Angeles Metroplex for an example of what happens with unplanned development.

This problem will eventually solve itself as more housing units are built and companies establish remote offices or encourage telecommuting (the advent of the Internet makes this even easier than before). Howver, I think a rather more serious problem needing worrying about is what is going to happen to the banks holding mortgages on these properties when the bubble finally bursts. I'm concerned that property values may fall to as little as half their present level, and banks will be left with X dollars loaned out against collateral worth X/2. About the best we can hope for is that the fall won't be precipitous.

The first speedbump in this roaring market will happen around 1 January, 2000, if for nothing other then purely psychological reasons. If nothing else, it's going to be an interesting ride.

Schwab

Re:Very Complex Problem

[IntlHarvester]

This problem will eventually solve itself as more housing units are built

Unfortunately, in the Silicon Valley, this isn't going to happen. The geography of the SF Bay Area is a large body of water surrounded by a relatively narrow strip of flat land surrounded by a set of hills that are largely undevelopable. The flatlands are largely full - there simply isn't any more land to build.

Furthermore, the built part of the SV consists largely of poorly planned 60s and 70s low density large lot development. With land values the way they are, one would think that increasing density would be a no-brainer, but try telling that to the home owning political constitancy in Mountain View or Cupertino. Ain't going to happen.

So, yes, new housing is being built - in Livermore and the Central Valley. Same sort of inefficent sprawl development, except this time on valuable farmland. Some of these developments are closer to Sacramento than San Jose. The Freeway system connecting these new housing developements to the jobs is already way over capacity -- commute times between Livermore and San Jose will soon be about 2 hours. Is it reasonable to expect people to do this?

Would companies relocate to the edge? Some (like PeopleSoft) have, but this makes doing business with them inconvient for the other 8 million people in the bay area. Unfortunately, where the executives live generally has more influence over a company's location than where affordable housing is. Remote offices just make it even more expensive to do business in the bay area.

You're right that there's not much that could be done here from a regaltory standpoint. Not unless you can convince the average SV suburb's planning board to throw out their master and start redeveloping everything. The problem could be fixed for the new developments, but the chance that Tracy or Gilroy is going to look past the big pile of developer dollars waving in their face is pretty low.

And, yes, there is a lot of land speculation going on. Much of this is due to the pent-up demand created by the burst of the last land speculation bubble in the late 1980s. Your're correct that this bubble is bound to burst too. There's also an enourmous amount of wage inflation, much of it required to attract talent to SV. Anyway, Hang on, because things will bottom out eventually!
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Why

[Anonymous Coward]

This makes no sense to me. Why would anyone want to live is SoCal and spend four hours a day in traffic?

I live 12 miles from work, it's a 15 minute drive through three towns and one national park. With today's communications infrastructure, it no longer matters where you live. Why live there?

The biggest problem I see is the street layout is "off the grid." In Chicago proper, the streets are straight and laid out at right angles, with few exceptions. It's so easy to drive, well, except for the new fad of double parking. Even when the Edens Expressway was shut down for two years, there wasn't the traffic catastrophe you see in SV. The cars just melted into the grid.

In the western 'burbs, like Arlington Heights and such, the streets are curly-cue like in SV. Multiple massive housing developments dump in one or two eightlane arteries that are ALWAYS choked. There is no way to develop mass transit with these housing patterns.

The phenomema that causes sky-high housing prices is that curly-cue streets, while causing traffic congestion, also cause a low density of housing, which causes a shortage, which drives up prices.

Putting housing and streets on the grid results in a high density of housing, which increases supply and lowers prices.

The best thing about grid layout, though, is you can actually walk to places from your house or apartment. Walk to the park, restaurant, store, whatever. In curly-cue, you drive to the Jewell, then get back on the drag to your next stop. You're just adding to congestion and stress.

For me, the best move was not geographic. It was getting out of towns with messed up streets, and moving back to a place with a rational street layout.

Re:It's What We Deserve

[tgd]

God, this pro-tech-union crap is getting so old. Are people really that dense? Does any of the people who think a union would be any good at all have any concept of labor relations or what a problem unions are when they're in industries like the high-tech ones today -- where the best vote people have is with their feet.

The problem here isn't the businesses. The businesses can't control the cost of housing or the fact that there is a shortage, just as they can't control the fact that there are far few qualified workers for the positions they've got than there are positions open. The latter pushes salaries up, the former pushes housing up, neither are the fault of the corporations, and neither can be controlled by a union!

I just can't figure out what that's so unclear to some people. What do you want, a union to force salaries to be even higher? Get real. They're too high as it is. (Not that I'm complaining!) But companies are being crushed under the pressure of extremely high IT salaries. Its common in companies for mid-level IT workers to be making as much as upper management, which causes a lot of friction in the companies. The only companies not feeling the crunch are the ones with billions of virtual dollars from over-priced stock valuations, which have a suprise coming to them when (not if) the market crashes. (Which it will, any second year economics student knows the economy is in a non-sustainable pattern, and none of the internet companies can justify 1/100th their stock value!)

This is just like the B.S. in that story about 60 and 80 hour weeks that was posted on slashdot a week ago. IF YOU"RE NOT HAPPY WITH YOUR SITUATION, YOUR FEET TALK LOUDER THAN YOU CAN! Leave your job. Take another. Unless you're fooling yourself about your skill level, you should have no problem. You'll probably get a raise. And if you've got a family and are concerned about being able to provide for them, there's quite a few technology hot spots in the mid-west, Dallas, or places like North Carolina where the pay is less, the cost of living is a lot less, and you won't be griping about being poor making $60,000 a year.

If YOU Seumas, are making low wages, working double hours or living in low income housing, I'd suggest another career or a serious rethinking of your strategy in planning your career. Because its not hard these days to make a very comfortable living working the hours you want and living in a rather nice house. If you (or anyone else on Slashdot) isn't, than you're making bad choices, and that's not anything a union can fix. Unions make bad choices for everyone. At least bad choices you make don't affect me or anyone else right now.

High property rates (you meantioned $600 for a small studio) are nothing new, and not IT-related. Apartments in central Boston have always been more expensive than even that -- I know people spending $1600 a month on a one bedroom... NYC is high, I almost spent $1300 on a studio. If you choose to work in any job in a city, you're choosing the higher cost of living for a shorter commute, or other benefits of city life. Can't hack that? Bad choice on your part, yet again.

High Prices of Real-Estate...

[Woodie]

Hey -

Silicon Valley isn't the only place that has high prices on real-estate:

Boston is climbing that ladder too. Right now, the average price per square foot of office space in Boston is higher than Manhattan's. That's saying something. The average 1 bedroom rental is around $800/mo. A lot of this is due to the abolishment of rent control, and the "gentrification" of various neighborhoods.

The prices of homes in the Boston area (all the way out to Rt 128, which encircles the greater Boston area) seem to be at a minimum $300,000. While this in no way compares to the situation in Silicon Valley (a single floor ranch that an older couple sold, went for 2.1 Million), it is indicative of a series of related problems...

1> The sale price of a house is an almost purely fictional value. Think about it - I mean, I know "land appreciates in value" - but does the house as well? Almost anything else you buy depreciates over time. Granted, land is in finite supply - thus it's value will increase as the demand for it increases - but the house on that land should really depreciate, unless it is substancially improved.

2> This increase in price stems from a vested interest on the part of two parties - the owner, and the real-estate agent responsible for selling the property. Keep in mind that the agent gets a percentage cut of the sale price! So, of course they want to sell it for as much as possible.

3> Like the stock market, the real estate market is so over inflated it's incredible. Essentially they are creating money out of nothing. There hasn't been enough of a tangible change in that property to justify it's suddenly increased value. However, when the property changes hands again, the goal is of course to sell it for even more! Thus further inflating it's price without regard to it's actual concrete value.

4> We are, in the age of "information" and as such, we are often concerned more with increasing the value of things rather than the actual worth of things. By value, I mean percieved dollar worth of something. By worth, I mean the tangible concrete value of something.

Look at Microsoft - they are worth over $500 billion - the next closest company is GE, and they are only $300 billion or so. If you liquidated MS - would their assets in any way come close to $500 billion? I know that value is based on their possible future earnings (ignore any possibility of an OS revolution here for a moment) - but do you really think that 5 years from now they'd be worth 500 billion in assets?

Sorry for the rant - but this is something I feel pretty strongly about. The housing situation in some parts of the country is merely a symptom of how far out of whack we've become. Just because someone will pay it doesn't mean you should take it.

- Woodie