I wonder what the thought process of people buying $1MM+ houses in SV really is. I mean how much more are the prices going to go, so that's clearly not an investment. Even if the only job you could get was in SV, required you to stay close by _and_ paid enough, you are still paying a big chunk of it towards housing! Oh and you're going to live in a smaller house too!
It makes little financial sense. You'd be much better off earning less in the southeast or midwest and living big. Also wonder what the sweet spot is wrt city/jobs/salary/savings/housing.
> I wonder what the thought process of people buying $1MM+ houses in SV really is.
I think at that order of magnitude, it you would have to consider it a true investment, and you should be really bummed if you're holding on to it when the prices drop. I would be hesitant to question how much more the prices can go up. People say the same thing with the stock market all the time, but the long term trend remains up.
I'm from the Midwest, so I'm not exactly up on everything in California, but from a number of articles I've read I understand that San Francisco is really worried about maintaining their skyline. Because of this they don't want to develop anything really tall.
Venture capital firms are mostly in the same area (San Jose?), and the further out your startup is from there, the less likely they are to consider you. I'm guessing it's a waiting game for a big tech bust leading to a housing bust of some sort.
I'll take my $830/month rent for a 2 bedroom, 2 bathroom (cable and internet included) in Iowa for the time being.
It's not so much the skyline in SF, it's that somehow "not building anything" has become a sort of "progressive" litmus test - if you are in favor of making any changes that would result in more housing being developed, you are a neocon shill for developers who wants to "Manhattan-ize" all of our neighborhoods, and if you want to continue preventing any substantial amount of housing from being built, you are a true progressive defending the poor and downtrodden. And everyone in the Bay Area wants to be a progressive, so you end up with this weird groupthink where because "not letting developers make profits" is progressive and everyone identifies as progressive there's this incredible opposition to making the policy changes that would result in more housing getting built.
It's really weird and makes no sense to me, especially since the people who get really fucked by this are people working in services who end up commuting from places where housing is cheap like Tracy all the way to San Jose where all the jobs are, who are exactly the kind of people you would expect "progressives" to be doing anything to help.
Also, San Francisco (and the Peninsula) really don't need to develop anything really tall, they just need to develop a lot more 3-8 story buildings, particularly in areas that are currently single-family homes. Nearly all of the Peninsula and most of San Francisco are currently single-family homes on ~1/4 acre lots, i.e. very suburban character.
BTW, I see mostly 6000-7000 sq ft lots, which is 1/6 or 1/7 of an acre. But how do you replace those with 3-8 story buildings? Those people have lived there for 20-30 years. Do you declare a housing crisis and evict them?
Are there examples of where this was done? I would love to know how fast it occurs, and see a graph of adoption/change over time.
I would imagine 5-10% of people would sell (to the developer) immediately. But those lots probably wouldn't be adjacent. Maybe after 3-5 years, enough adjacent lots could be found to make it appealing to a developer. (The developer wants economy of scale, and economy of multiple units sharing common space.) Where is the tipping point?
If the developer offered to buy homes at 20% over market rate, I wonder how the graph would change, vs. market rate.
But the developer needs to start buying immediately, yet can't recoup their investment for several years. They may not like that.
It just entirely depends on people's priorities. Some may feel that the particular career opportunities they have access to here are a very high priority for them.
Also, if someone had built a social circle over the early part of their careers, and are now thinking of these need for a larger place to raise a family, the social ties may be hard to give up. If they have no ties to the Midwest, done may be adverse to building a social circle and foundation from scratch again, even if the economics are favorable.
That is simply not true. Even if you bought at the peak in 2007 in Sunnyvale you are likely up 50% or more on your investment. If you were lucky and bought in 2005 or 2009 your house is probably worth 60-70% more than when you bought it. This has been true for the past 25-30 years in much of SV. That doesn't mean it will continue forever, of course, but the trend has been there for a very long time now.
Ok, but what if I had invested the house money - would the rate of return be more/equal/less? There's of course the economy crash but I would expect that to affect house prices too. Just sounds like a bad idea to consider primary residence an investment.
It's surprisingly hard to beat investing in real estate in growth markets like SV because of the leverage afforded by the ratio of down payment to home price....
For example in Los Gatos, appreciation has been 5% on average for many years, and so the 200k you put down on a 1m house will typically appreciate by 50k. 25% roi in year 1, increasing each year. Of course, property appreciation doesn't happen in a straight line, and houses cost money to maintain (property taxes, etc) but the larger point is valid.
Obviously that depends on what you invest in and how much risk you are willing to carry. In the long term the stock market index funds have returned about 6-7% annually adjusted for inflation. Take almost any 10-year window in the past 30 years and SV home prices have either matched or beaten that substantially.
Real estate speculation by putting all your money in a your own house is generally not a good investment. You aren't diversifying, you don't have any information advantage over the market, you're unlikely to be objective about the value, and there are high friction costs in buying/selling it.
Maybe a bit like driving an classic car in everyday use. Except the car has low friction.
Edit: Not saying you should not buy a house, just that you should be honest about what it is - you get value from owning and living in it, and the market risk is unwanted for most people.
But all the other actors in the market have the same tax advantage, so the house prices rise in concert with the tax deduction. (at least in SV, can be different where construction costs dominate)
When using normal real estate investment vehicles, investors are also able to deduct the interest as a business cost.
> I mean how much more are the prices going to go, so that's clearly not an investment.
Except it is.
You forget that in most scenarios your initial capital and what you paid toward the place is still there, and you'll keep paying it even if you wind up underwater, and you can generate cash flow from the place, and a lot of that is tax deductible, resulting in decent windfalls from the government annually.
I used to live in Back Bay, Boston, where prices are well over $1000/sq ft, so I'm not shocked by the prices at all.
Weather is nicer in SV. Not everything in life is about financial decisions. Living "big" in midwest means you need to live in midwest, which will decrease my standard of living tremendously, the social aspect at least.
Places that are equally nice are also expensive, e.g., LA, Zurich, NYC, London. I just prefer to live in a nicer area than to live in a 7 bedroom house with a 10 car garage.
Can you say more about the social aspect? Seems like a big-ish city in the Midwest would be similar -- and perhaps with more well-rounded people (who do more than work 60 hour weeks).
It's like the difference between Zurich and Hamburg - one is a lot more homogeneous than the other.
I don't think it's that easy to "live big" in the midwest too. Where is the nearest Ferrari service center if you live in Iowa? What's the equivalent of The French Laundry?
If I want cheaper cost of living I'd most likely move to Berlin.
You'd be much better off earning less in the southeast or midwest and living big.
I recently bought a fairly expensive house and happily sacrificed square feet for a shorter commute and being closer to the city center. We looked at several houses that where in the 2000-3000 sq ft range and most felt way to big for what we needed/wanted. A smaller house was at no point in the process seen as a negative. We eventually got a house that's just under 1500 sq ft with a small, but very nice, garden and we've so far not once wished that it was bigger (although we might add a small conservatory, bringing it to just over 1500 sq ft). Bigger house just means more work keeping it cleaned and maintained. Living in a huge house far out in some dull suburb with a long commute to work sounds like my perfect nightmare.
As for our 'financial' reasoning. It was a house we really wanted to live in, in an area we really wanted to live in and we could afford it, so we bought it.
It makes little financial sense. You'd be much better off earning less in the southeast or midwest and living big. Also wonder what the sweet spot is wrt city/jobs/salary/savings/housing.