The other way to look at this is apartment rental prices are merely "correcting" upwards to be less out of line with the housing prices.
A $1 million SF home has to charge $6000 in rent each month to break even, to cover cost of capital, taxes, and maintenance. Apartment rents cover utilities to varying degrees, as well.
A nice three bedroom apartment is the equivalent of a $600k or $800k condo, which "should" charge $4000+ per month. What is the going price for that rental? Across the bay area, the median is $2500. That makes sense in San Jose, but in other areas, not so much....
So is the issue that house prices are unsustainably high? Or is it the renters have gotten used to prices that lingered unsustainably low for a surprisingly long time?
IMO it is a bit of both. But we have probably under built rental units in some markets.
With a 4.8% mortgage rate, 20% down, 37% marginal tax rates, 3% inflation, closing/buying costs around 3%, 9% rate of return on capital and ~$700/month:
Buying a $600k place is break-even with renting at $2500/month after 4 years and buying is better thereafter. $800k is break-even at around $3300/month
There is government distortion playing in. The mortgage tax deduction (esp. in a state with high income tax rates) provides huge incentives to buy. $4,000 a month in rent is only equal to $800k buying if you are below the 15% income tax bracket.
It's a gold rush. California is famous for them. Quality of life for most of the tech workers is pretty low, but everyone is focused on the stock option lottery, and there are plenty of winners (next up: Twitter) to keep up faith in the system.
Ironically, most of my friends who have liquidated their options end up moving out of the city.
Quality of life is low in the sense that they are paying a huge % of monthly income in rent and usually sharing sub-standard housing accommodations. They don't save much. They work a lot and rarely have time to enjoy the area.
Quality of life is high in the sense that they enjoy what they are working on and feel like there's a decent chance it will make them rich. They are in the middle of a boom and millionaires are being minted left and right. They now have friends they went to school with, who they know well, who have millions of dollars in the bank who rent yachts, vacation in Ibiza, and bang models in Las Vegas (while plotting angel investments and new startups). They feel very close to an indescribable grandeur and if they just keep grinding away they will get there.
So in some ways it sucks, and in some ways it's awesome and they will look back on this period as the best time of their lives. But very few of them think about this as ''real life'' the way people elsewhere in the country seem to, when they think about what community they want to live in, who they want to date or marry, where their kids will go to school and how their life will unfold in the decades ahead of them.
I can't relate to this at all. I'd argue that the quality of life is actually much higher here. Even with longer work hours.
Sure rental prices suck, but to name a few things:
* Weather is amazing.
* Wages are higher than anywhere else for my profession.
* The quality of food/produce is better than anywhere else I've lived, year-round.
* Within a 4-hour driving radius, I can be skiing, surfing, hiking or tasting world-class wine.
* Easy to meet up with like-minded people.
But it's not like these people are stuck here. Most of them could get a job in many different areas of the US and abroad.
It's supply and demand. There's limited supply (SV doesn't build UP like NYC) and a lot of demand (plenty of high income folks).
I agree that rent is high. I'm paying 2x as much to rent a 3bdr/1bath home in Sunnyvale than I was paying for a mortgage on a 4 bdrm/2.5 bath home in Cincinnati. I'd probably be willing to go up to 3x (and might actually have to do so).
I'm not playing the options lottery (though I'm 2 years into founding a startup). I very much like living here and hope I don't find myself back in Cincinnati (nothing against the city, just not my cup of tea).
This is the third or so time this blog has been posted to HN and every time people ask where they got their data and every time there is no response. This time, some of their data doesn't look so good, at least with the boundaries on the map being all messed up. Also it's not clear if they adjust for inflation.
Sorry to hear the map boundaries are looking weird to you.
We're using US Census boundary shapefiles to draw the city limits. This is how the map should appear: http://i.imgur.com/xk8WI6Q.png - does it look different on your end?
Email me if there's anything else I can do -- omar@priceonomics.com.
Is it really rude to not answer a question? I guess it is a little rude to ignore it. He could say something like, "I'm sorry, but I can't answer that question."
Agreed, but one wonders if perhaps they did something like scrape Craigslist for it (which might make sense but totally be in violation of the ToS for a very litigious company)
It would look a lot clearer if you didn't overlay the colors over water sections, but limited them to land only.
Downtown SF just looks... weird. As do a bunch of other sections. A strange line going down the bay parting the water. It makes it a lot more confusing than necessary.
Los Altos and Los Altos Hills are two different cities. In some places you treat them separately, in other places you appear to be lumping them together, possibly because they share zip codes. Rents in Los Altos Hills are in the stratosphere, probably because of the minimum 1 acre lot size.
We actually recently made a similar map for a number of metros, normalized by square footage to control for different unit sizes. It's interesting to note the differences in the map between the two metrics (total rent and per sqft):
Increasingly, we are also adding actual data from integrations with our customers' property management systems. We think this data set will be more accurate and more valuable, although it obviously takes a lot more work to build.
One of our goals is to be able to understand the difference between listed and actual prices in various markets.
Would have to disagree on everyone being focused on the stock option lottery. 1st its not a lottery. You can do analysis that shows that working for large entrenched dominate company, think Apple, Google or such over 5 years will beat a engineer joining a series B,C company that makes it. For startups there is often a trade of salary for ownership. If you calculate it over many years and payrises, bonus's etc... the numbers may play even.
Many many people in the Bay Area are not in startups at all and not playing the option lottery, they are married with children. Some play the management ranks and others contract, etc... I met a woman once in the dot com boom that confided in me that she made $1mill in 2000 over a short time. It got me thinking about the real equations at work. You need to do math, simple math but you need the data which you may not have.
Anyhow, that said, it is true I think that engineers do not get their fair share of equity many times in companies even with dozens of people. So this is when ownership or foundership or close to starting is a stock option play. Options are a contract to own at a price set on the contract. If the price rises dramatically you have a massive amount of capital. Stock options are very risky, compared to straight risk adverse salary jobs. For risk there is reward. It has not much to do with lottery, manly with risk and reward and statistics. You need to crunch the numbers and consider risk and then decide on your career paths.
A scale that goes from green to red? I'm unable to discern the difference between colors evenly spaced on either side of the middle line.
Mousing over to see change does help. Perhaps instead of simply colors (please, designers, don't rely on color alone to convey information. Think of the chil^H^H^H^H color blind individuals) you could have patterns for the fills.
It will be interesting to bookmark this, and then look at it 18 months from now when the market grows by about 28% (number of rental units in the SF bay area expected to come available due to new construction) SF itself has a huge number of apartment projects being built, as do many peninsula cities.
Not sure if you are implying there will be 28% more rentals available in 18 months than there currently is, but thats totally untrue. There is about 135k current apartments in SF.
About 8,000 new apartments, mostly in mid-rise and high-rise buildings, will come on line between now and 2015. Thats around a 6% increase.
However, remember that we also have population gains in SF right now from incoming tech workers. Prices in rent are very unlikely to go down, however they will most likely stabilize.
You may be saying that more properties are going to be available around SF, but that has never changed value in SF before (oakland boom, for instance) and instead just made those surrounding areas go up.
New building permits in the nine bay area counties. Not just the city of San Francisco. I'll see if I can track down first hand sources for the summary I read.
28% would be a truly astonishing number. Even if all residential construction was rental (no condos or houses) that would still be an insane amount for 18 months.
If you want to account for actual pay vs. advertised, you could probably model it to some order of effectiveness by applying a decay function of price vs. age of listing. This operates on the assumption that bargain rentals are on the market briefly, while overpriced rentals languish on the market.
I would get the data from the same authority that is tracking inflation - rent is included in the basket. In the USA I think the Bureau of Labor Statistics does the 'official' data collection.
Rent prices are pretty uniform - there isn't that much differentiation between properties of the same class (# of bedrooms and location, are what mostly matters; tenants don't make choices based on the type of furniture); so prices are relatively uniform - you don't have to ask a lot of people get those prices.
This is of course confirmed each time someone tries to create yet another index - if you use the same basket and weights, only rarely there are any differences in recorded prices.
Completely anecdotal, but their rental prices for Redwood City are in line with what I pay. The median prices they list for other cities seem to be in line with what I'm seeing looking at different places to live as well.
In one of the other boroughs or the surrounding area, however, you can find stuff for a good bit cheaper. Hoboken avoids city taxes and is a 10 minute subway ride to Wall Street. You have to go into war zone ghetto or out to a much longer commute to find something more affordable in SF. The job market for tech in NYC is going to be of a more boring variety on average, but with comparable salaries and I would guess increased stability and benefits. Definitely different strokes for different folks, so not a 1-to-1 by any means, but could be a reasonable option for many people.
I live in Texas and might be moving to SF area. My 2000 SF house here is cheaper than a 1 BR apartment there and no income tax. Prop taxes are a little higher (4% per year). Financially it's way better here but job wise not as much.
Good question. It's not clear where there data source is coming from (well, their own service, but where is that coming from?). Data source is important: Using craigslist for instance will ignore tons of places on the low end causing distortions.
Are there any studies relating rent control and pro/anti landlord policies in these cities and how they relate to the availability of inventory and rental prices in the bay?
BART from Oakland to SF is OK. BART to Caltrain to Silicon Valley is a proper hassle. The two systems don't line up real well, you're liable to clock 4 hours a day commuting if you go all the way down to Palo Alto. Driving at an off-peak time is strictly better.
Oakland is a big place, and the BART stations are generally either downtown, where the rent is relatively high, in places you don't want to live, or far away from you.
I know people already do this. My intent was to ask why it's not the default for people who would save $1-2k every month. It seems the assumption is working in SF means living in SF for software developers making > $100k/year.
A $1 million SF home has to charge $6000 in rent each month to break even, to cover cost of capital, taxes, and maintenance. Apartment rents cover utilities to varying degrees, as well.
A nice three bedroom apartment is the equivalent of a $600k or $800k condo, which "should" charge $4000+ per month. What is the going price for that rental? Across the bay area, the median is $2500. That makes sense in San Jose, but in other areas, not so much....
So is the issue that house prices are unsustainably high? Or is it the renters have gotten used to prices that lingered unsustainably low for a surprisingly long time?
IMO it is a bit of both. But we have probably under built rental units in some markets.