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

[1] https://techcrunch.com/2014/04/14/sf-housing/

I own my house. I doubt the building appreciates. Its nominal value will go up, sure. But I also have to pump money into it. Stuff continually breaks and rots. Appliances need to be replaced. Carpet gets filthy. Gutters need cleaning. Plumbing breaks. The list goes on and on and on. After all of that, I'd be stunned if I break even on the building.

No, the great part is the land. That's how I capture the value of others' investments. If the government improves the nearby highway, my land value increases. If new jobs locate nearby, my land value increases. More nearby population, more shopping, better schools, more parks? All make my land worth more. The trick is I didn't have to spend money on any of those things--maybe my taxes paid for a small portion of some of them.

Is this fair? Well, I suppose property taxes are part of the answer to this. I gain value, so I have to chip in more.

There's the risk, too. Maybe the government doesn't invest much, all the jobs leave, and my land loses value. Much to the consternation of many people there, I just point to the usual example: Detroit.

Well, from the right angle, sure it does. Google opens an office in town XYZ. To be close to the office to do good work, engineers move to town XYZ. They pay lots of money to the residents of the town to "buy them out", because what the residents hold (land) is now very valuable by proximity to Google. We're fine with this in many cases. Oil discovered on your land, and you hold the mineral rights? Yes, you get a big chunk of the profit.

It just seems especially bad here because SF is landlocked and heavily restricts development. But at the end of the day there is only so much land, and you & everybody else want a piece.

If I understand the LVT, applied to this scenario, instead the residents are forced out because they cannot pay the LVT. The result is perhaps the same (old residents leaving), but as a society we don't generally like actually forcing people out of their homes on grounds of, the land is getting to valuable to allow them keep it. That can still happen with today's real estate taxes, but if I understand right it would be more extreme with LVT because the potential of the land is the chief asset being valued, instead of the combination of the land and the building that stands on it.

I'm still learning about the LVT, of course.

We're fine with that, I think, because assigning the rights to the landowner (and not taxing away essentially all of the value of those rights) helps ensure that the well gets developed. As a city grows in population because of the economic opportunities it presents, no corresponding incentive is necessary. (At least in the case of Silicon Valley, people are moving here despite a massive disincentive in the form of property values.)

> If I understand the LVT, applied to this scenario, instead the residents are forced out because they cannot pay the LVT.

Well, again, my proposal for modifying Prop. 13 could also apply to the LVT: to limit the payments due while someone is living in the house, and allow the balance of the tax owed to be collected when it is sold. That's a modification to the LVT as it is usually considered, but would allow us to make it easier for homeowners to ride out periods of rapid price appreciation. (The poor dears. [0])

I think part of the point of taxing only land value, as the LVT does, rather than taxing improvements as well, is to encourage density. It's true that the modification I propose works somewhat against that; but I'm also inclined to agree with those here saying that a complete repeal of Prop. 13 is not in the cards.

[0] I couldn't resist this crack once I wrote the previous sentence. I think it's often forgotten by Prop. 13 proponents that, prior to Prop. 13, the people with big property tax increases also had big paper gains that could, in principle, cover those taxes. What Prop. 13 really is is a massive wealth transfer from newcomers to people already here. That's understandably popular with existing residents.

Not in California. The maximum annual increase in assessed property value is 2%, and property tax is limited to 1% of assessed value. This only changes when the home is sold.

It's pretty unlikely for anyone to be forced out of their homes because of property tax increases.

Not as much as you think.

I think the key change that is needed is to make Prop. 13 apply only to owner-occupied residential properties. Applying it to all real estate was a horrible mistake.

If you penalize Costco or Wal-Mart by taxing them on the land value that they themselves appreciated and make them the victims of their own success, they will move to the next closest town that will guarantee some tax breaks, and perhaps you as a city official can then extract property tax from a parking lot with a bunch of "for lease" signs and a pop-up Halloween costumes store.

This might be politically easier, too, than what I'm proposing. Prop. 13 was sold, in part, with a promise that landlords would pass their savings along to renters. That was a stupid promise to make and was never going to happen; rents are set by the market, period.

I'm not clear how that would help. That seems like an extremely strong incentive to never sell. Yes, the county might theoretically get more tax revenue this way, but mostly it seems like a way to convince every sane homeowner that selling is a terrible idea and you're better off renting forever or selling to a family member. This is already true, but it would be especially so if the county handed you a $100k tax bill when you sold.

I don't think we want to see homeowners unable to sell because the tax burden is too high.

Many homeowners are already unable to sell because they will have to buy another home, which will come with dramatically increased property taxes if they have owned their current home for as little as five years. This is because the base assessment under Prop 13 is refreshed by a sale, and house prices have doubled in the past five years in the Bay Area. (In the past 30-40 years, home values have increased almost 10X.) They can only avoid this if they move out of the area to somewhere cheaper, or choose to become renters.

A tax lien on the value of the property on top of that would make things even worse. We should be encouraging more liquidity in the market, not less.

The issue is less that city councils need incentives to build new housing and more that the NIMBYs do. Large chunks of the population decry the high cost of housing and then vote against more. No one actually wants to see their home values drop and no one wants to see the rate of appreciation slow. You won't fix any of this by adding tax liens against these people. Also they'll just vote down your proposal.

Edit: Actually, commercial construction isn't generating more tax revenue, because commercial properties also receive prop 13 protections. Residential properties supposedly generate 72% of tax revenues.

http://www.evolve-ca.org/prop-13-facts/

Edit 2: General property taxes produced 6.5 times as much revenue for SF as sales taxes in 2015. Property taxes on vehicles alone (which is not included the the general property taxes) accounted for more revenue than sales taxes. It's utterly untrue that commercial real estate generates more revenue than residential.

https://data.sfgov.org/City-Management-and-Ethics/Spending-A...

You're asking the wrong question. It doesn't matter what the relative contribution of existing residential property vs. existing commercial property is; what matters is how new construction will affect the city's revenue. The argument is that given a parcel of land and the question of whether to approve it for residential or commercial construction, the city will realize more revenue from a commercial project.

> Large chunks of the population decry the high cost of housing and then vote against more. No one actually wants to see their home values drop and no one wants to see the rate of appreciation slow. You won't fix any of this by adding tax liens against these people. Also they'll just vote down your proposal.

Certainly there's a lot of that. My posting is an attempt to shift the debate by whatever small increment I can manage to.

Also see: http://www.sfyimby.org/

I think there is starting to be a change in sentiment as prices continue to rise.

I can see that this is your argument. I'm not sure that it's at all true, though. Businesses in the Bay don't pay much in terms of direct business taxes. They do pay property taxes, but they sit on their properties much longer than typical homeowners so over time their taxes end up much lower. So you maybe get more sales tax, but that's really dependent on residents spending.

I also don't see that construction of residential and commercial real estate as being in direct competition. Residential developments aren't being voted down in favor of commercial developments on the same parcels.

> Certainly there's a lot of that. My posting is an attempt to shift the debate by whatever small increment I can manage to.

I just don't see that your proposal addresses any of the real issues. What your proposal does is magnify the biggest negative effects of prop 13.

> I think there is starting to be a change in sentiment as prices continue to rise.

I hope sentiment changes, but I'm not seeing much evidence. The focuses seem to be around continuing the distorting effects of rent control and low-income housing. I'm not opposed to either of those, but they don't address the broader problems. If you want housing prices in reduce overall, you need more housing and/or better transit to make it easier to get in from more distant housing. You also need people to accept that their housing investments won't yield the returns they'd hoped for which is a tough sell.

If the property value merely takes a big jump in the first year and doesn't change thereafter, the annual payment will eventually catch up to it (a 2% annual increase is still exponential growth!).

If you want to add a clause that says that the collected tax will never exceed the difference between the sale price and the original purchase price, I'm okay with that. But I'll bet it will practically never be needed.

So basically all the time.

> Even if it does that and then the market takes a huge dive right before the owner wants to sell, the sale price will probably still be well above the purchase price.

Three important words: Home Equity Loan. How many people in the bay area have taken equity out of their homes for renovations, medical bills, etc? I'd wager a lot. Throwing a big tax lien against their houses could easily put many of them effectively underwater.

> If you want to add a clause that says that the collected tax will never exceed the difference between the sale price and the original purchase price, I'm okay with that. But I'll bet it will practically never be needed.

You think that will make it attractive to sell? Any equity you've built is gone. All the payments you've made have evaporated. Everything you hoped to get out of the house is owed to the state. This leaves you with a choice to rent the house until you die, realizing a significant input stream, or selling and literally ending up with nothing. Who's going to sell?

A tax lien is a public record. Banks will subtract the amount of outstanding liens against the property (even if not yet due) from its estimated value before deciding how much to loan against it. Yes, the amount will be smaller than it was.

> Everything you hoped to get out of the house is owed to the state.

You need to look at some actual numbers.

Let's say the original purchase price is $X. Let's say that the property appreciates 10% per year for 3 years, and then in the fourth year, the market tanks. What happens? At the 1% tax rate mandated by Prop. 13 [see below], the total tax due for the first three years is 3.3% of X. The total tax paid is 3.06% of X, leaving a lien on .24% of X. Okay, then the market tanks. If it tanks 10%, the property is still worth 1.197X -- the owner has almost a 20% gain; the .24% is hardly noticeable. If the market tanks 20%, the owner still has a 6.4% gain; the tax lien is still less than 4% of the gain. The market has to tank a full 25% -- a massive collapse, well into recession territory -- to wipe out the owner's gain completely and make that .24% start to hurt a little.

Okay, now let's try a scenario where the 10% appreciation continues for 10 years. The total tax is 15.9% of X. The total amount paid is 10.9% of X, leaving a lien on 5%. But in the tenth year, before the market tanks, the property value has more than doubled to 2.59X! Even if the market crashed an unimaginable 50%, the tax would still be a small fraction of the owner's gain.

Now, about the tax rate. It's true that in my original post I suggested that tax rates could be set by the locality instead of being capped at the 1% limit Prop. 13 imposed. The replies to the effect that that's unrealistic are probably right; as a political matter, that limit probably can't be raised. But just as a thought experiment, if we imagine that the tax rate is 2% rather than 1%, it doesn't change the outcome very much.

Play with more scenarios if you like. If you can come up with one that shows a problem, I'd love to see it.

Fair enough, though lots of people have ended up underwater because the banks gave them larger HELOCs than was wise.

None of this makes your proposal good, though. At best it magnifies the biggest problem with Prop 13, namely that it encourages owners to hold indefinitely (either as a primary or rental residence) rather than lose the tax benefits. Making a sale suddenly incur an additional massive tax burden will not encourage market liquidity. Nor will it encourage new housing construction in any meaningful way.

> You need to look at some actual numbers.

You need to look at what I was replying to. This was in response to your proposal that the maximum tax lien be capped at the difference between purchase and sale price. You were literally discussing the situation where the owner will walk away with zero dollars (negative, actually, due to closing costs).

I'm done here.

1) You will force people out of their homes after a certain point. By delaying the payment on the taxes until sale, after some number of decades the amount of tax owed upon sale will be far larger than the value of the property, and no buyers will be found. So you're going to squeeze out not only ordinary family-residential ownership (nobody wants to buy a house that they know they'll just need to resell in 40 years or else pass some point of no return) but also commercial development (even if you can afford to buy multiple tax-deferred properties, you'd be developing on the land knowing that it'll be almost impossible to sell it on towards future development in a few decades) and infrastructure development (what, the government is going to pay itself on its enormous property tax bill when it needs to eminent domain private property to build new infrastructure?).

2) What happens if the old person never sells? Their children inherit the huge property. Do they owe the deferred tax upon transference? Does the tax continue to defer? If the tax is owed upon transference, and the children are unable to pay, and they're unable to find a buyer because the market crashed and no buyer is willing to pay that much tax - what happens? Does the government bail the children out of its own tax bill?

Not only does deferring the taxes get rid of the primary benefit of the property taxes for local governments (stable and dependable tax income year over year), but it dramatically incentivizes rentals and short-term ownership. Short-term ownership is terrible because it disincentivizes investment in the property itself. Ultimately development disappears and you have people either long-term renting from short-term owners shuffling the properties among themselves or short-term owning, and since the people who do need short-term housing are people like college interns, you'll find that the amount of talent is only going to decrease and put further upper wage pressure on engineering salaries.

No. Show me a scenario in which that happens. Remember that applying the Prop. 13 formula to the tax payments allows them to grow at 2% annually. No lien is created in the first place unless the property appreciates faster than that.

At least it seems that way. We had a hell of a time buying a house this year, and multiple realtors said the same thing - Californians buying second/third/fourth homes here as investment properties, and Chinese. (Lots of Chinese folks buying houses outright in cash.)

Homeowners carry most (unless the mortgage fails) of the risk around housing prices. If a town goes to crap and a $500K house drops to $250K, will society then help cover that loss?

In 2008, the banking system imploded. Owing to a number of things, but primarily securitized lending leading to too many bad loans, losses in the banking system exceeded the amount that could be absorbed from loss provisions and profits. (Which as point of reference, isn't that high to begin with, it's no more than about ~0.75% of total loan capital/year).

The US (and other countries) did two things - they bailed out the banking system's asset losses, and they lowered interest rates.

Had no intervention at all occurred, there would have been a great depression style crash. That would have led to substantially lower house prices (due to the destruction of money/credit) - but it would also have destroyed anything else in the economy that depends on credit.

Had just the asset side bailout occurred (this is essentially Quantitative Easing), and interest rates been held high - housing prices would still have dropped. Lower interest rates translate directly to being able to afford larger loans, larger loans mean non-linear (leveraged) higher house prices in any market where housing is in any kind of scarcity/high demand.

Now it could be argued that it was necessary to do both to stop the banking system failure from destroying the economy - but in that case, and with house owners clearly benefiting preferentially, why wasn't some form of compensation advocated for all the non-house owners in the economy?

But the 64% who benefited is a whole lot more.

Apropos not a lot - this is also the reason why real estate in places like London, SF, Vancouver, has become the 'store your wealth' option for the very rich.

If land tax were, say, 10% of land value, then buying a house would be at least an order of magnitude less capital intensive, and the homeowners capital risk would therefore be much less significant.

You're questioning whether we should have property taxes at all. As long as we do, the principle that property owners share their gains with society is established. And certainly, if property values fall, taxes should (and I believe generally do) as well. So to that extent, it already happens.

Governments need a certain amount of money to function. The question is, what is the best structure for the taxation system. Should we tax property? Income? Consumption?

There seems to be general agreement among economists that a land value tax is the least inefficient form of tax. Read Henry George if you want to know why.

Hell, a flat wealth tax proposal might even get the support of economists.

> 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.

As long as you don't want to be living in a massively large house, living in the Bay Area is going to beat being in most other places for several factors.

a. Depending on your preferences, the Bay Area is one of the best, if not the best, places to live in the United States. It offers moderate weather, access to outdoors, excellent air quality, access to culture, a variety of job options, and a good tech ecosystem.

b. An average salary of $210k for a married couple is large even with the higher rents here. That's about $140k post-tax and after 2 bedroom rent in say San Francisco, you still walk away with $86,000 disposable a year.

> Most of the additional value we create by working for these high-tech companies is being siphoned off by property owners.

Some is, but not most. Per my note above, an SF resident might pay an average of $15k more per year for a 2 bedroom than they would in "average America", but that's not most of the added post-tax salary an engineer gets here.

> it still protects those on fixed incomes from being forced out of their homes by property taxes

Can someone actually get forced out of a home by property taxes due to value increases? A tax rate of 1.25% takes 80 years to consume the value of the property. If you just take a reverse mortgage against the additional value, wouldn't that protect you for life?

https://en.m.wikipedia.org/wiki/Land_value_tax

The argument for not taxing the improvements is basically that the value of the land is created collectively, while the value of the improvements is arguably created by the property owner. One could argue that this isn't entirely true, and perhaps there's a case to be made for taxing the improvements at a lower but nonzero rate; but then you have to go to the trouble of assessing the value of the improvements. Assessing the value of just the land is easier.

Another point is that by taxing only (or mostly) the land, you encourage denser construction as soon as the demand supports it. Tearing down a three-bedroom house, or a few adjacent ones, to build an apartment complex, is more financially attractive if the total tax bill doesn't change.

On the other hand, dense development incurs more social costs. There will be more demand for emergency services, utilities, traffic control, etc. that generally are at least partly funded by the increased property tax on high density improvements.

Civil society has no say in this. It is a politically created system and if you ask those with political power if this is the way it's supposed to work they would of course answer Yes.

That said, I admit I'm not optimistic either, but the way to do it is to point out how ordinary people in the Valley have been or are being forced out of their homes by rising rents and the generally rising cost of living -- as property values rise, everything becomes more expensive. There's a hardship story there at least as compelling as that of the fixed-income seniors that Prop. 13 was designed to help (at least, that's how it was sold). Bay Area teachers, plumbers, food service workers, etc. etc. etc. surely have as much interest in not being forced to leave as anyone else -- and what's more, the local economy needs them! We can't run a regional economy with only software developers!

It's true that Prop. 13 is not the sole cause of the problem. Kim-Mai Cutler [link in my first post] does a great job of analyzing the whole situation (though I guess the Google bus thing has blown over since she wrote it in 2014). But it is one cause, and it may have to be addressed before the problem can be solved.

I know that getting people to vote to increase their taxes is exceedingly difficult. But excessive property values behave just like a tax: you can't get out of paying if you live here, and the money is sucked out of the local economy -- it doesn't even go toward local services and infrastructure. The argument is that we'll all ultimately be better off if we build enough housing for everyone who wants to live here. The change I propose is one way to encourage that to happen.

That argument will work in the Bay Area. But since we're talking about California constitution, why should a voter from Coalinga or San Bernardino (a) vote "yes", (b) potentially see his/her own property bill skyrocket due to the fact that some coastal municipality can't manage its own building permits and/or transportation.

A lot of the high-cost-of-living discussion is really low-availability-of-transportation discussion. Would high SF costs be a concern if one could commute in reasonable amount of time from Emeryville, Fairfield, Tracy, Livermore or Marin county?

It's obvious that Prop 13 contributes to the problem, but Prop 13 is untouchable. Realistic proposals to make housing affordable do not involve changes to Prop 13.

Can't we mostly stick to the object level of judging ideas on their merits? Of course political strategy matters too, but it seems to dominate discussion. It's out of proportion. I'd be much more interested in it in a form like "well, of course that's out of our Overton window right now, but here are some ideas to push things in a better direction."

I'd say we're pretty close to a crisis already.

Politics is full of emperors' clothes -- topics where some people have doubts, and also uncertainty about what others privately think, and so on recursively. When every conversation gets derailed into meta-talk about realism (i.e. the current public illusion, which everyone can see already), that slows us all down. If you're only interested in what's politically feasible right now, great, and it doesn't bug me when you frame it that way. But saying "I'm not interested in your conversation" doesn't seem like much of a contribution to the conversation, compared to silence, and it's less than that when it shades into "Hey, how out of it are you? Can't you even see that's not gonna happen?" That's public boundary-patrolling, it's not sharing your own perspective.

This may be the wrong place to rant about this. You just pushed my button to finally write it out.

What we are talking about here, specifically, is a short-term plan to deal with an immediate problem -- housing affordability. It's not the same kind of thing as the examples above. Short-term solutions have to be politically viable now, or in the very near future.

Short-term focus is not in undersupply. Our discourse would be improved if people about to respond with that sort of putdown would ask themselves how likely they are to hear back "Hm, yeah, that's a problem that didn't occur to me." -- and if that seems absurd then question why they want to say it, or at least the way they're saying it. This goes especially when shutting down ideas that are probably new to many people in the discussion.

Saner collective decision-making matters far more than housing cost, or even (IMO) the bigger struggles you mention. No, I don't expect healthier discourse right away either -- but we can try not adding to the problem.

It took us decades to get into this situation; it's going to take at least a couple of decades to get out of it.

[0] http://journal.firsttuesday.us/californias-rate-of-homeowner...

I'd say the thing that causes greater soaring house prices is the mortgage tax deduction. All that does is cause home prices to inflate because you factor in the tax deduction into the affordability of the house. On the surface it sounds great, but it actually does more harm than good because it causes prices to go higher.

But you can't get rid of that now, otherwise house prices across the board will plummet. And the Fed just spent trillions propping up the housing market with ZIRP, there's no way the government will let the housing market fall again.

Secondly, rhetoric about "more" government and "less" government tends to leave me cold. (The solution to buggy software is not "less software" any more than it is "more software".) What we need is well-designed government. That means, among other things, that when we find that one of our systems has unintended and undesirable consequences, we fix it.

And thirdly, I don't know how this is a "government-caused problem". Prop. 13 passed by referendum.

On the supply side, government imposes zoning rules, building permitting, building codes, setbacks, height limits, etc. All these lead to a tightening of supply and an increase in price. Some can lead to corruption, such as if the permitting process is too restrictive and results in bribes & kickbacks to the officials in charge.

The government boosts the demand side as well through Fed policy first, which artificially lowers interest rates. Then there are all sorts of housing policies that encourage home ownership with eased lending standards, better loan terms, etc. That boosts demand and increases price.

So you're talking about Prop 13, but I'm talking about the overall picture.

Well without property rights, the entire human race wouldn't have left the hunter-gatherer phase, so property is not the root of the problem.

Property is simply one of a collection of fictions we choose to enforce because the alternative is usually more miserable.

The rationale is closer to this: the government caused this problem, and the government can (and should) fix it.

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/) 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.

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.

$300,000 a year is $190,000 post-tax.

Assuming 20% down, a $1.7M home would cost somewhere in the range of $8,000 a month after factoring in the mortgage income tax deduction.

That leaves $94,000 a year disposable, which is a lot anywhere. This family can readily get a full-time nanny for the early children years, ensuring no parent needs to take time off.

Now make those salaries for the next 30 years.

Your point is valid in that as you make more money more of it can go to housing because a smaller portion is required for things like food, clothing, gas, transportation, etc.

3x gross income was the conventional rule of thumb but truthfully that was back when interest rates were 7% or so. However, just because you can afford something doesn't mean you should.

Usually when people mention foreigners in real estate, they are talking about nonresident investors (often Chinese citizens). Calling out mere ethnicity of homebuyers is weird.

That is true and one of my neighbors was a realtor for 20 years and has a number of friends who advertise in foreign countries that they can find you an investment property in California. Typically though, those buyers seem to be "status invested" rather than simply buying a house. So they look for places in San Francisco, or Palo Alto, or Saratoga (places where there is some status associated with owning a home there) rather than say Sunnyvale or Santa Clara.

That said, my neighbor came to the US on an H1B with his wife and daughter, is working for a local tech company, and his parents gave him the money for a 20% down payment on his house. That saved him the more typical path it seems of getting a starter house, building a bit of equity and then trading up to a larger house. I expect that being foreign nationals they don't have the gift tax burden that US parents do.

On the one hand that is foreign capital fueling higher house prices but at the same time my wife and I got a loan from her parents to help buy our original house, so I don't consider it out of the ordinary if the parents can help out.

And how many of them were engineers moving over for jobs? It's not just Californians relocating from nearby communities, sure -- I moved from Canada (via a few years in New York), for example. But it's unlikely to be some foreign absentee landlord.

In the DC area this results in a weird trend. There are almost no 3 bedrooms in Georgetown below a million. That'll buy you about 1,200 square feet. $2 million will buy you an actual urban mansion with triple the square footage and wood paneled walls. The price is entirely driven by what ~$300k HHI couples can "afford" maxing out their mortgage eligibility. Once you get above that, demand drops precipitously.

If you assume you shouldn't spend more than 1/3 of your gross income on a house, that would mean the homeowners should be making $325K/year (and already have $500K saved they can plow into a house).

Wow.

The seller who had originally owned our home sold for a ~20% loss over their purchase price (purchased in 2007).

That seems quite cheap compared to Manhattan[0][1][2][3], and only one of those is in an relatively desirable neighbourhood.

0. http://streeteasy.com/building/richmond-condominium/9a?featu...

1. http://streeteasy.com/building/439-east-51-street-new_york/6...

2. http://streeteasy.com/building/355-east-19-street-new_york/3

3. http://streeteasy.com/building/circa-central-park/5g

There are so many things that make this an apples-to-oranges comparison, the above list is not comprehensive.

I chose to buy my house in Sunnyvale because it was near the "center" of things (and for a time that was a bit more literal than I expected). Within ~30 minutes of downtown Sunnyvale by bike you can work at Apple, Google, LinkedIn, HP, Yahoo!, NetApp, Intel, AMD, and Amazon. Not walkable but not particularly bad either.

BTW, Manhattan presents something even better than single car friendly -- zero-car friendly. We only temporarily got a car once we had infants, since carrying around car-seats was a pain. Most other times, we've been just-in-time with Uber or just plain walking/subway.

However, there are a bunch of startups actually in San Francisco, Uber and AirBnB being ones that get a lot of airtime, and Twitter (which is no longer a startup). There are lots and lots of pre-revenue 2 - 15 employee companies there as well. YCombinator is in Mountain View which is right next to Sunnyvale, and about 36 miles from San Francisco.

San Francisco is urban and hip and all of that, and a lot of people want to live there. Then they take bespoke busses and ride down the peninsula to places in the "south bay" (the collective term for the communities at the southern end of San Francisco bay). That is part of the issue that SF residents have, which is people who live in SF but work somewhere else, they are able to pay higher prices and the bus eliminates the commute disincentive.

On either side of the bay between these two loci are a number of vibrant and interesting places as well, on the west side you have the peninsula cities of Burlingame, San Mateo, Redwood City, San Carlos, and on the eastern side you have Oakland, Hayward, Berkeley, and Richmond.

Somewhat remarkably they have their own micro-climates so you get different weather depending on where you are.

Cities in the north and on the east of the bay have BART service, cities on the south and west of the bay have CalTrain service. There are three major airports one east (Oakland), one south (San Jose), and one west (SFO). Efforts to turn Hamilton Air Force base in Marin county into a northern airport have been rebuffed several times.

If you are not working at a company that is actually located in San Francisco you will have a shorter/easier commute if you live outside of San Francisco (typically on the east or west side of the bay that your company is on). You will also pay less for an apartment/house.

[1] Which is nominally the Santa Clara Valley where all of the semiconductor companies were located.

Depends on your definition of fun - being harassed constantly by both homeless people and SFPD? If so, then a paradise awaits you.

I now have a longer drive and I am much happier. Having been to Manhattan I doubt walking there is much more pleasant either. Walking in a small town would be nice. Not in big cities.

I find driving relaxing, it's got just enough attention to be a distraction from the stray thoughts, and with music, enjoyable enough to work past any driving frustrations.

i live in sunnyvale. along the ~0.6mi route between my house and the kids' school, 3 houses in past month or two come to market and each sold after just a single weekend of open house. i've actually been surprised at the speed of sales in recent weeks.

> Sunnyvale has a ballot measure (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.

kinda. this is more about what happened w/ raynor park after selling the adjacent school, but there are a few other deals in sunnyvale (e.g. city buildings). i spend a lot of time over at raynor with our little league, and my biggest issue is that a private school now has priority use of the fields during specific hours. oh, that and they paved over one of the baseball fields (well, backstop + grass) after the city gave away the small strip of land along the school. over in santa clara there's been some f'd up tactics around Levi's stadium to get park land (using term loosely) developed. BMX track and soccer fields will be missed.

Christ, are they already doing that?

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/ [2] 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-2... [4] http://www.census.gov/newsroom/press-releases/2016/cb16-158....

The best solution is to align people's incentives to create more regional housing. The two major classes of people are existing home owners and renters.

Although there is a hodgepodge of solutions, one way to do this would be to phase out Proposition 13 and rent control. Of course this would be really unpopular but should in theory lead to more market efficiency and create incentives for both groups to want more housing.

Existing home owners would want more housing to keep property taxes down. Renters which were previously protected by rent control would also be more vocal about creating new housing. People might actually work together to change zoning laws to increase density and improve transportation solutions.

In the current situation, there are some perverse incentives. For example in SF, if you are in a rent controlled apartment but can actually afford to buy a house, it makes sense to rent the house at market rate while you stay at your rent controlled apartment.

Yeah, to the point that you should think of a different solution. Prop 13 is the 'electric rail' of California politics.

If you read the OP's detailed comment, he proposes limiting the yearly tax payments. Consequently it would be no worse than now if someone wants to stay in their home. What would change, however, is that the person would pay more of the gains to the city when the house is sold. In your senior citizen example, the elderly will most likely stay in their home until they pass so this will affect only the inheritance.

This would also discourage property owners from just sitting on their property. There are empty lots in Palo Alto because the owner only needs to pay $1000 year in property taxes. This would encourage them to sell the land to people who could use it more productively.

I'm still not sure how to process that.

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.

No, they are _very_ well paid. Anywhere else in the country (minus NYC I guess), they're getting half as much. Simply paying Bay Area developers more money isn't going to make housing more affordable -- what do you think will happen to housing prices when even _more_ money is floating around in the local economy?

Odd, when I was actually willing to sniff around for jobs in the Bay Area I couldn't find anyone willing to come close to doubling my Dallas salary. As far as I can tell, unless you can score a job at Google or Facebook your statement isn't accurate.

Where are you getting the idea that it's normal to be able to own a home in a major desirable city and global economic hub?

Quick Streeteasy eyeballing around 86 suggests the maintenance need not be $1500 either -- you either get a fancy elevator building at that price, or you get a walkup at a lower price than $650k.

Also, you pay property taxes (higher on new purchases), maintenance, and so forth in CA too.

Hollister to Atherton is 68 miles. To get to Atherton by 8am tomorrow, Google says he should leave at 5:50am: https://goo.gl/maps/bfSBp4vFtJQ2

If cheaper housing could be built on the peninsula--where there happens to be lots of low-density housing and open space!--he could live closer to work and the 101 and the 280 would have one less vehicle twice a day. But for reasons we all know, this will not happen.

PS: The structured wiring guys on this project are driving in from Tracy in the Central Valley and staying at a hotel on the mid-peninsula. That commute is even worse than Hollister. Google estimates it at 2hrs 40min one-way (!) for an 8am arrival time tomorrow.

That's changing. Prices in EPA are now >50% of equivalent housing in PA, and rising rapidly through the same processes that have given us $1.7 million starter homes elsewhere in the Bay Area.

There's really nowhere within an hour of PA that has home prices even 50% of PA, much less 25%. Three hours, maybe.

I've lived in a home similar to http://www.zillow.com/homes/34404-Torrey-Pine-Ln,-Union-City...

It might be the right personal choice for some people, but public policy should not be designed so long commutes are the norm.

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?

Some people like Omaha. That's fine. But if you want a mix of city culture, a range of excellent restaurants, bars, a reasonable public transit system, and the particular outdoor options that the Bay Area has, then Omaha isn't an option.

Maube this sounds facile, but it's important. It's not like San Francisco is expensive purely because of the economy or the government or whatever. It's expensive because lots of people want the things it has to offer.

The difference at play is not culture. The difference is housing market restrictions, median wages and company + worker density. Every city has cultural, food and geographic advantages. To word it that the Bay Area is nearly strictly superior is to frankly confuse the issue entirely.

Denver has snow. It doesn't have a comparable food scene.

Portland, ME is small and has cold winters. Did you mean Portland, OR? Again, big climate difference.

Again, it's not whether one is better or not. That's personal preference. But the Bay Area has excellent cultural amenities and a pleasant climate. There are many people for whom that is important. There's a reason so many people say that they'd love to live in Chicago if it weren't for the winters.

If that doesn't apply to you, congratulations! You can save money! Personally, I like being in the Bay Area, and the things I like about it aren't available in Omaha or Denver.

Or is the the ability to belong to a group of people that can afford $4 gas and $6 bagels that's notably missing from other places?

If you don't think the Bay Area has amenities worth paying for, that's ok. I do. Many other people do too. Different people like different things. That's ok.

This is obviously besides the point that I've never paid $4 for gas or $6 for a bagel in San Francisco.

But the high housing prices are hard to escape if you don't want to live far from work.

http://www.usatoday.com/story/news/nation/2015/02/02/census-...

Would genuinely love to hear your suggestions on where else I can get all that.

Given this, while Omaha, Nashville, Oklahoma City, St. Louis, may, to varying extents, be great cities with good schools cheap housing, etc. they don't necessarily have the best technology companies.

The key to this problem is really held by cities like Twin Cities, Dallas, Research Triangle NC, and Atlanta, which have great infrastructure, industrial cultures, cheap housing. It would be nice if tech companies open substantial outposts there or if new companies are founded there that become Amazon-level successful. Whether this will actually happen is another thing altogether. These cities haven't spawned super-successful tech companies in the last 30 years, but have older "tech"/industrial companies that continue to thrive.

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.

They're all pretty reliably liberal. And they've each got their vegan restaurants, dive bars, comedy troupes, public transit, art museums, symphonies, Magic: The Gathering Meetup groups, Black Repertory Theaters, major national sports teams, gay bars, Strava cycling groups, hipster neighborhoods, and so on and so on and so on.

I know what people in San Francisco picture when they think of the Midwest and there's no other way to say it: they're wrong.

None of which is to say that any of those cities are quite what San Francisco is. Of course not! But people seem to think that Midwestern cities have all the cultural diversity of an anti-abortion rally. And that's really nothing more than ignorance.

I recently got into a pretty silly spat with someone on Twitter who thought it was quite the dagger to point out that I lived in the Midwest. Don't be that guy. Again, not because it's mean, or whatever -- because it's uninformed.

So I'm sure places like that appeal to people, I can see the charm, but you gotta be ok with that kind of Americana, because if you aren't, you simply won't be happy. I'm sure there are plenty of people from STL who wouldn't be happy with SF either (not enough parking, too much traffc...). I'm not sure I would be happy with SF, I'm much more partial to Seattle even if I'm in LA now (which isn't bad either). I also hate humidity which rules out most of the Midwest, even if the fireflies are pretty.

This is the common cargo-cult "me too" Midwest line of thinking.

Unfortunatly, two half-functional "rapid" bus lines does not mean a city has "public transit". One or two neighborhoods with a vegan restaurant and some Bernie yard signs does not make a city "pretty liberal". A VC fund with a few hundred thousand dollars does not mean a city has a "startup ecosystem".

I'm not knocking the Midwest -- I live here too, and the Midwest is trying really hard to pretend they have this stuff. But the size and scale doesn't even remotely compare. "City living" in the Midwest is a facade. Locals often can't tell the difference, because they've never experienced anything different.

You might as well be telling Seattle folks, "Milwaukee has mountains too, just check out Mount Telemark!". Or listening to people try to pass off the Great Lakes as "third coast cities". There aren't enough eyerolls GIF's on the internet to cover the level of disconnect Midwesterners have between what were doing here, and what world-class cities are like.

----

The Midwest would do better to emphasis solutions they actually can achieve now, rather than constantly self-highlight the areas they are sorely lacking. These cities could try building dense urban affordable housing, or invest in better urban schools, or help care for and reduce their homeless populations -- things they could actually and easily beat SF on right now.

----

> I do know a fair amount about Indianapolis. (snip) people seem to think that Midwestern cities have all the cultural diversity of an anti-abortion rally. And that's really nothing more than ignorance.

That is not a comparison in your favor, all things considered. https://www.google.com/search?q=mike+pence+abortion

"This is true in public policy, too. I live in St. Louis, where we're constantly chasing the tails of bigger cities and their neat, new bike-share-startup-trolley-incubator-green-space whatevers. And it'll never work. For St. Louis to ever have any hope of being cool, it needs to focus on the things that make St. Louis cool and give up on trying to be Chicago."

https://news.ycombinator.com/item?id=10583393

Which is to say that I think maybe you've misunderstood my point.

You can't really talk about "The Midwest" as a monolith.

[0] https://en.wikipedia.org/wiki/List_of_United_States_urban_ar...

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.

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!

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.

Tech companies in Seattle are clustered in a few different neighborhoods, but most of them are walkable from their respective neighborhoods. That said, tech companies are slowly migrating toward the greater downtown area due to the gravitational pull of techies that want to live there. And everything in the greater downtown area is walkable if you don't mind walking (and people in Seattle don't). It isn't a small area.

Microsoft specifically, though, is still mostly on the "east side" (the metro area has a 88 square kilometer lake in the middle, Seattle proper is between the "west side" of the lake and the bay). Microsoft has offices in the major urban neighborhoods but still have a huge campus in Redmond (an east side suburb).

It's still summer.

Your friend is in for quite a surprise, especially in January when the latitude means sunrise at 10 AM, sunset at 3 PM.

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?

You can easily rent out a single bedroom for $1500-2500 anywhere near the more central SV hubs.

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?

The zestimate for rent is about 4300. So not terribly under market.

You didn't "give" 40k to your landlord. You paid him for the use of his property, which presumably gave you shelter, kept you warm, gave you a place to park your car and keep your stuff, and he would fix anything that went wrong.

That, to me, would like be me kicking myself for "giving" a hotel a couple hundred dollars for a room for a couple of days.

A house provides you with shelter and warmth, and presumably provides these things to your family. You're paying money to take advantage of these things. Why is renting so much different from buying?

Basically the amount you're paying in interest is tax-deductible, but you're not building equity.

This guy was paying $800/mo for rent, so presumably he'd be looking at mortgages near that cost. If so, he'd almost certainly just take the standard deduction.

In other words, when renting, the upper bounds for housing costs is $9600/yr. While when owning, the lower bounds for housing costs is mortgage * 12, and you'll maybe get a small % of that back when you sell.

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

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. :-(

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...

[1] https://www.google.com/webhp?sourceid=chrome-instant&ion=1&e...

[2] http://citylab.news21.com/data/types/19/

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.

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?

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).

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.

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.

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.)

Yes, they hire in the Bay because there is talent in the Bay. But talent is in the Bay because they hire there.

If they set themselves to it, I'd imagine they could convince a lot of people to work in other locations. "If you move to <city> with half the CoL, we'll pay you 90% of your current salary"

It's an interesting proposition and one that I suspect many would take seriously. But as an eternal pessimist, I would immediately ask what would happen if I were to lose my job after 6 months living in <city> where my alternatives would be to work for Regional Bank A or Third-Tier Manufacturing Co. B who would not be offering 90% of my previous salary but rather 40%?

We stay in the Valley because if, as has happened to me twice already, I wake up and find the company I worked for is now insolvent, I send two emails and find myself another job before lunchtime.

Google, facebook, twitter et. al aren't insolvent. Yest, I know, bordering no-true-scotsman... I think his point is if the superstar corps move, there may be some motion, not hipster-startup #229777. Yes, and Yahoo! and other examples of big names going under exist.

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.