Silicon Valley Housing Crunch

Rents and real estate prices have gone crazy in Silicon Valley and San Francisco. What’s going on? Is it sustainable or a high tech bubble all over again?

Housing Crunch
San Francisco residents are complaining about the high tech companies — Google, Facebook, Twitter, Apple — that have contributed to a leap in rental prices, with the median one bedroom apartment now costing $2,795, and considerably higher in some neighborhoods.

Meanwhile condos and houses throughout the Bay Area are selling with multiple offers at prices above list, and above the peak pricesof the housing bubble. All-cash offers are common, and real estate agents recommend a 30% down-payment to even get considered.

Part of the housing crunch in San Fran proper is caused by commuters to high tech companies, enabled by the controversial luxury buses with leather seats and wifi that transport young technologists to the tech titans of Silicon Valley.

Commercial real estate is equally affected. With the influx of high salaried workers, expensive boutique shops and fancy restaurants are replacing more modest establishments, driven out by the high rents.

The Great Inversion
Isn’t it just gentrification? Same story happening everywhere. Yes, and no. San Francisco prices have been rising for a long time, and the merely upper middle class are being priced out by the even better off.

A demographic inversion is continuing, with the formerly decaying and crime-ridden inner cities getting richer and the suburbs becoming the new home of the immigrants, as in European cities.

It Will Continue
For multiple reasons, the trend is likely to continue.

The population is growing. That puts upward pressure on prices close to where jobs are.

Income inequality is increasing. There are no signs yet of a change to the decades long trend of rising inequality. As the rich get richer, the richest will spend more of their money on their homes, driving up prices in the most desirable neighborhoods.

Urban planning and legislation suppresses the supply of housing. Places like the Bay Area have restrictive development and zoning policies, and perverse tax incentives, which restrict supply. That inflates prices to the benefit of existing homeowners, reducing turnover.

Geography limits expansion. San Francisco is surrounded by water on three sides. There’s no room to expand, unlike in some cities surrounded by developable land.

Finally, the technology revolution inaugurated by the Silicon Age is not slowing down. The Bay Area remains the center of high tech investment, and as long as computing continues to transform more areas of life, more tech billionaires and multi-millionaires will bid up the prices.

If it were only Silicon Valley, the rest of the world could shrug and say, Who cares? But the patterns of rising prices can be found in many urban centers throughout the US and the world, regardless of the dominant industry. Where the local economy is vibrant, housing prices are rising in many inner city and inner suburban neighborhoods.

Multiple of the trends favoring rising prices can be found in other urban areas with a solid economy. The geographic constraints can be found in most coastal cities or cities bordered by lakes or mountains. Affluent and liberal areas everywhere tend to pass laws to restrict development. Only the technology trend distinguishes Silicon Valley, and even then, several other urban areas have a growing base of high tech jobs.

I’m not very satisfied with what I’ve read about the revitalization of cities, gentrification, and housing trends generally. I do recommend reading The Great Inversion for part of the story.…

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Cities of the Future

Well-heeled liberals tend to assume that everyone should live in cities, and the world would be a better place for all. People would consume less energy for transportation and temperature control. They’d get more exercise from walking and taking public transit, extending their lives. Quaint Jane Jacobs-style neighborhoods would improve people’s daily routines with friendly local businesses and amenities.

All of that’s true. But here’s why it could go a different way.

The City Is Dead
Given technology trends, there will soon be fewer reasons for cities to exist.

  • Video conferencing improves so much that physical proximity becomes irrelevant — for socializing as well as working
  • 3D nano-printers one day can create any food near instantaneously, driving most restaurants out of business, because we’ll all be able to Jetson our dinners on demand. Assuming that virtual reality doesn’t render the physicality of food irrelevant first.
  • Online shopping continues along its trend toward beating the real thing.
  • Online dating utterly replaces the in-person variety, as the recent marriage stats suggest.

If all these come to pass, what reason will be left for living in a city? It won’t matter where anyone lives.

Long Live the City
And yet, some of the benefits of cities will remain.

  • Energy efficiency
  • Greener living
  • Lower cost delivery of goods
  • Virtual reality may one day provide an adequate experience of nature

In an especially science fictional future, people might end up living in Matrix movie style pods, plugged into virtual reality, living at a density to make Tokyo seem spacious.

What do you think will happen?…

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