Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places. As long as there is a good net connection, it could be anywhere in the world. Let's concentrate on the US for a moment. Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines? Talented people already move from one coast to the other, so they could as well move to any other place. The rest of the country's infrastructure is so good that you could connect venture capitalists, founders and customers in any arbitrary way.
I also say to the main point of the articles: rents have a lot of room to grow under the current logic. City centers simply get voided of average earning people and replaced by high earning ones. As soon as they are the average earners, even more wealthy people move in. Also with the rents, salaries go up, so people have the possibility to pay for their accommodation again. While in Berlin you could easily live with 40.000 Dollar/year, you'll probably have to add another 60.000 so people are at least somehow able to move to work for your new shiny SV company.
>Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places. As long as there is a good net connection, it could be anywhere in the world. Let's concentrate on the US for a moment. Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines?
Because the real commodity being sold with the apartments and offices isn't net access or even land. It's proximity to rich people. It's not an open market economy; it's a feudal system in which you need to stick close to your patrons.
I live in Chicago. I love it here because of everything else it has to offer. I have everything almost everything I need available to me within walking distance from home. That includes grocery store, dive bars, cheap restaurants, high end restaurants, clubs.
For anything else I may want to do (concerts, sports games, plays, comedy), there are dozens of world class options within a ten minute cab drive / 30 minutes on public transportation.
It's gotten to the point, where if there's a band I want to see, but they're in the suburbs, I'll just wait til they're back in the city.
I grew up and went to college two different small beach towns. There wasn't much of anything to do besides drink. If you wanted culture, you'd have to get in your car and drive at least an hour.
I have no desire to live outside of a big city, unless it is in the middle of nowhere, but in that case, I will still have a home in a city.
My guess is a lot of other people feel the same way.
There are certainly a lot of factors. People want to live in trendy cities. There's a lot to consider besides rent - culture, nightlife, etc. San Francisco sure does have some of the best food in the country (and with tech consuming most of spare time the way it is, eating out is really a huge part of culture). Rent definitely ends up being the deal breaker for many, but for others isn't.
It's a lot harder for a company to hire top tech talent if they're in Miami / Des Moines, because the Bay Area has a much higher concentration of tech workers. Convincing people to move is hard, especially so for more experienced tech workers who have a life/family somewhere. You need to be getting an insane deal for it to be worth abandoning your friends and family/forcing your partner to find a new job (and I've yet to see tech companies trying to compete on comp vs SF/SV outside of them). Can't run off middle-road new grads alone (Edit: Good point below that top grad talent wants to hit the big cities too).
> Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places.
Startups are built on young talent. Young people are obsessed with living in "the big city" and to hear them tell it, living in a suburb and driving a car is about the worst thing imaginable.
So if you want young talent, you better set up shop in SF.
> Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines?
Some of the burden is on you to prove what has failed so far. If it is possible to build a successful large scale startup in Amarillo, why hasn't it happened?
I'll point out the theory of agglomerative clustering also includes the contrary point: a city that is great at something tends to exclude other activities, for any given amount of population. A city like Amarillo, which plays a role in the oil industry, is less likely to be great at software, because it plays a role in the oil industry. It's population would have to grow before it could be good at both.
Also, if two 20-somethings build a successful startup in Amarillo, they may want to move to San Francisco as soon as they have money. The "this startup can be anywhere" argument works both ways: yes it could be Amarillo, but if it can be anywhere then it doesn't need to stay in Amarillo.
And the startup can also move to Poland, or Romania, or India. If you believe the startup can be anywhere, then you basically believe that a startup would only be in Amarillo by random chance. If there are 100,000 great cities in the world, and all of them equally good for a software startup, then the chance of a startup being in Amarillo is 1 in 100,000.
But in fact, there are good reasons why startups tend to cluster into certain cities. You should read "Why tiny Stockholm has the most stunning startup ecosystem since Tel Aviv" :
I think it's mostly just because the concentration of the industry is convenient.
In the UK, there are tech jobs all over the country. But there are probably more in London than everywhere else combined, especially if you're looking for the start-up unicorn types. I lived in a smaller city for a while after university, but there were very few jobs to choose from that interested me.
I moved to London for one job in particular at the time, but also safe in the knowledge that it would be easy to find another job. I've had 4 different jobs in London since then, and it's never been very hard for me to find something else that's suitable and interesting for me.
The same holds true for most of my friends from university - many of the moved to London because it was the most obvious option for finding a tech job. So it has a further concentrating effect, that people are more likely to know others who are working in the capital city than elsewhere in the country.
If I was seeking a new job and open to moving anywhere in the country, I could find one somewhere outside of London. But if I was already living in another city, it might be harder to find a job without moving. It might not be quite the same in US, where there are a number of cities around the country that are a similar size to London, but in the UK there are maybe only 2-4 other cities that are large enough to have a wide selection of jobs in one industry, and none besides London with a population of over 1 million.
Pretty much it is a networking effect issue. The same reason why you are posting this on hackernews instead of reddit. Physical proximity matters a lot, even when work is digital.
You're absolutely right! It could be anywhere in the world! Talented people can easily move anywhere! Startups can be successful in San Antonio, Phoenix, or Ithaca! So why do so many smart people insist on concentrating themselves so?
Is it possible that perhaps there may be reasons for people to choose such an obviously irrational thing? What do they think they're getting out of it?
Many companies have found that they benefit significantly from physically proximate workers. There are distinct benefits to putting people in offices in person. On top of that, having many such companies in one place is beneficial to the specialist worker. It mitigates risks of unemployment, and enables workers to take greater risks.
Myself, I've done what you suggest. I took a job in a cheap place. It was great in some ways, and terrible in others. When I decided I was done with the job, I had to leave that city. There just weren't many options for me there. I understand why a businessperson would like it - you get more leverage over cheaper employees - but it's not the best choice for me.
Zoho's CEO feels that good software products can be developed not only in silicon valley or even big cities like Chennai and Bangalore, it can be developed in non-descript towns like Tenkasi too.
I think with more accessibility to digital media, and expansion of skills through internet education, skills can be diffused across geography, atleast in our field.
My understanding is it's largely demands of VC. They want to be able to check in on their investments, and having to hop on a plane to do that isn't convenient. That has always struck me as odd, since the invested money would go further in a cheaper market, but that's the explanation I've heard many times.
The author of the article is a professor of economics but doesn't state the true cause of rising housing costs: Market inefficiencies (or market failures) caused by politically induced market scarcity restrictions called "rent-seeking" which benefits landowners such as President Trump over people who rent or are purchasing housing.
Rent-seeking was first illustrated by David Ricardo in the mid-19th century (IIRC) and surprising that the author did not cite the true reasons for the rising housing costs.
Harvard Economist Edward Glaeser and Economist and Financial Times writer Tim Harford among many others writes about this.
Remember, rising prices come from scarcity. Eliminate the scarcity and your eliminate the high prices. Reverse the zoning density restrictions and you get lower prices.
Tokyo is a good case study for how effective selective deregulation and zoning policy can lead to more efficient housing construction.
In Minato ward — a desirable 20 sq km slice of central
Tokyo — the population is up 66 per cent over the past 20
years, from 145,000 to 241,000, an increase of about
100,000 residents. In the 121 sq km of San Francisco, the
population grew by about the same number over 20 years,
from 746,000 to 865,000 — a rise of 16 per cent. Yet
whereas the price of a home in San Francisco and London
has increased 231 per cent and 441 per cent respectively,
Minato ward has absorbed its population boom with price
rises of just 45 per cent.
Ricardo's law of rent shows that indeed, even without artificial scarcities imposed by regulation, rent can go up forever as long as productivity is rising.
While we want housing to be affordable, arbitrarily trying to reduce rental costs is futile. Rent exists. It is a reflection of the intrinsic desirability of the location. The only way to reduce the rent is if the location becomes less desirable and less productive.
So, really, it is a question of political economy... of who should own the rising value of land, since that value is not a return for the effort of the owners.
You call them rent seekers, but the vast majority of the anti-builders I see around the Bay Area are home owners who worry about traffic or some such. It's not some big conspiracy to increase profits. It's incumbent nimbyism.
Attend a town hall meeting where they're discussing a new apartment building and you'll meet them.
>Remember, rising prices come from scarcity. Eliminate the scarcity and your eliminate the high prices. Reverse the zoning density restrictions and you get lower prices.
Yes, but why would you want to do this? Or more accurately, why would the powers-that-be in a given area want to do this? They already have their real estate, and they're profiting by the rising prices. Why would they want to bring prices down?
Yes it can, College Tuition is a great example. Instead of finding the cause and treating it, we just increase the amount of aid people have access to.
I remember hearing a variation of this claim by rationalizers for the dot-com stock market bubble in the 90's and the housing bubble in the 00's.
I recognize you're not trying to rationalize this, but you've identified the common factor to each bubble: a new and unsophisticated source of investors being aided by the financial industry.
With the dot-com bubble, it was daytraders and online traders generally (including me). With housing bubble, new untraditional homebuyers who bought homes with exotic mortgages. With education, student who traditionally would not have gone to college going to college.
These could have all been positive examples of American upward mobility at work. But as was especially evident with the housing bubble, the financial industry turned people looking to improve their lives into consumers and, in many cases, exploited them.
With rents in metropolitan areas, it seems to be driven by wealthy investors (institutional investors and wealthy foreigners) pricing marginal middle class homebuyers (e.g. yuppie millennials) out of the market and then turning around to rent to them. Renters, like tech workers and young white-collar professionals generally, can stretch to afford these rents. But they definitely have a ceiling and all of this has been fueled by a growing economy. As soon as the economy falters, aid will dry up and the roof will cave in.
No, college tuition will rise with middle-class incomes.
This is a cultural phenomenon. We're "supposed" to get our children the best education we can possibly afford, otherwise we are bad parents. Since colleges don't have price discrimination, this essentially means tuition is set at the absolute maximum that the middle class can afford - squeeze every penny out of them. This is why aid won't reduce the burden of tuition on the middle class (tuition will just rise to meet the aid amount). It's also why tax breaks won't help the middle class either (same idea), although the tax breaks can help those above the middle class (since they have a higher tax rate, and the tuition rises to match exactly the effective aid for the middle class).
The fallacy of rent control, which only treats the symptom and fails to address the root problem of inadequate supply and restrictions to adding additional supply to the market.
But college is not a necessity, whereas living somewhere is, and you can somewhat easily get money from the government (at least in the US) to support your degree, whereas you can't really get that for your housing.
This article crystalizes a point that was vague in my mind: "megacities have a problem making it affordable to raise large or even medium-size families. How many of us could live in San Francisco, London or New York City and bring up three children in a decent neighborhood with good schools? Only the already well-to-do can manage such a feat.".
As a mid-30s person with a new baby, I don't see how the numbers work for new entrants to the housing market - unless you were a gambler. Your gamble would be that (a) you don't ever take a hit on your income, and (b) property prices continue to rise. We've been unable to take that gamble .. and homes have increase 40% in the blink of an eye.
In Canada, we have a lot of family in the GTA. We're basically priced out of areas as far away as Mississauga and Milton (Milton went up 20% since Nov 2016). An option we are considering is to move to BC and just rent for a few years in Vancouver. At least we get a better city out of it. For any Canucks, are there any other decent places with tech jobs, and somewhat affordable housing?
I've said it many times: this is one area where NYC is so much better off than, say, the Bay Area.
In NYC you have an ultra-wealthy enclave around Central Park and pretty much the rest of Manhattan really requires winning an affordable housing lottery, being an incumbent or being in the top 10%.
That might seem like a problem but it's not. Or at least not a huge one. Why? Because there are affordable options within reasonable distance with public transit (eg NJ, Queens, the Bronx).
Compare this to the Bay Area where there's really nowhere affordable to live.
So rents here are a proxy for property values. The author is right that property values have a natural ceiling but that's in the macro sense. There can be (and are) enclaves that are only the domain of the rich (eg lower CPW, CPS, 5th on the Park).
This sort of thing tends to have a flow on effect which is why gentrification tends to radiate outwards.
So you end up with a situation where you can buy an apartment on 57th for $100m and 30 minutes away you can buy one in Queens for $150k.
That's actually a pretty healthy situation (IMHO). It also means that property values in Manhattan, for example, still potentially have a huge amount of upside.
I lived this out a few years ago when I had (great) offers in hand from TechCo in the Bay Area and FinCo in NYC. Running the numbers, the former was simply impossible without a four-hour daily commute, whereas the latter worked pretty well with a commute half that long.
Supply and demand. So long as people want a limited resource enough to pay $X+1 for it, prices will rise. There's a limit to the inherent value of living in a megacity (adjusting for floorspace, quality, etc), so once insufficient customers are found, prices will flatten or drop.
Being able to work from anywhere, there's no reason for me to stay anywhere near a megacity (which I find expensive and distasteful). As employers discover the cost savings of telecommuting, employees will discover the cost savings of moving out of megacities ... and prices will slow, flatten, and perhaps even drop.
I agree. The only challenge for me is the lack of dining table economics on the part of employers outside of places like NYC and the Bay Area.
What I mean is that they almost exclusively look at local market prices for developers. They don't generally factor in what developers can make in the big cities. Now, some do, but generally they just apply the inverse of a cost-of-living multiplier and make that offer. That's problematic because then our savings rate, something that should be measured in absolute terms, is being reduced.
Anyway, point being, if I add up my benefits, savings rate, and cost-of-living adjusted expenses, I end up with a big number for most non-coastal-U.S. employers. I then have the risk of branding myself as an overpriced prima donna, especially if I'm seen as a cost center instead of as a strategic resource.
> there's no reason for me to stay anywhere near a megacity (which I find expensive and distasteful)
Yes! I lived in SF for a year, but then moved back home to Ohio and went back to working remotely. I occasionally travel to bigger cities to work with colleagues (maybe 3-5 trips a year), and this feels like a much nicer balance.
I also earn enough that I could live like a king around here... or live on a more "normal" income, save the extra, and retire at ~45.
The article is mistaken about one thing: the size of the financial sector is not limited by the total wealth of the world. Eg: there could be derivative contracts (insurance or derived bets) for cumulative values much more than the value of the underlying asset (arbitrarily high, in principle). This is a big factor in what makes the global financial system so fragile.
If the finance industry keeps skimming a fraction of all the money flowing through it then financial hubs like New York city and London could keep becoming more expensive.
I work for a tech company in San Francisco and would gladly relocate to a cheaper city if the company allowed us to work remotely or had other satellite offices. Unfortunately, the satellite offices we do have seem to be dedicated towards specific departments, which doesn't help me.
To put it another way, the cost of real estate in a given area is proportional to the rate of money flowing through that area. Will ever larger flows go through New York and San Francisco, increasing without end? History suggests that is unlikely.
From Toronto. We have it worse. We are actually thinking of moving to Vancouver and renting :-p The rents in both places seem the same, except Toronto has shitty traffic, very limited tech opportunities, bad weather, and bugs. I looked around at jobs in Vancouver and it seemed a bit surprising how many tech employers there were.
Can you shed light on why you are fed up with V? Where else are you considering?
What does it look like if a rent bubble pops? Can such a thing even happen? Rents tend to be difficult to change without moving. I guess rents can fall if demand considerably outstrips supply and the landlords get desperate, but most landlords I've seen are pretty stubborn and will hold out until the last second before they lower the rent a single penny.
Not literally forever, of course, but I think it's naive to say people's inability to have the lifestyle they want will deter increasing rents. Empirically, society on balance doesn't care one tiny bit how much hardship people endure, and people will endure the hardship. I'm not seeing what mechanism is assumed to counter that.
> Many more economic sectors tend to be spread out geographically -- such as higher education, caring for the elderly, installation of smart-home equipment, fracking, restaurants -- and if more economic activity takes these forms, to some extent rents will equalize across different cities.
I do not buy this. In the countryside the economy is backed by the local resources (forestry, agriculture, if it applies fracking etc.). The rest of the economy in the countryside lives off the money brought in by those, and especially off the wages of the workers.
The more automatisation you have, the less you need people spread out. The trend is that things get cheaper and need less work that is more centralized. What you need to be able to do is creating new things, and that is easier in centralized megacities.
Obviously not forever -- eventually the sun will become a red giant and consume San Francisco, at which point all rents there fall to $0 -- but I heard "forever" in that article as "the foreseeable future and its foreseeable future". Maybe 100-200 years; maybe longer than that... How do you read it?
Sure they can. That there is a natural bound relative to other fundamentals in no way means that the absolute price cannot unboundedly increase. Any in any case, the most thorough spatial equilibrium analysis suggests that there is natural agglomeration of high skill/wage (locally positive feedback). The reference is Diamond (AER 2016), but the working version of her job market paper is a bit more complete: http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf
[+] [-] geff82|9 years ago|reply
I also say to the main point of the articles: rents have a lot of room to grow under the current logic. City centers simply get voided of average earning people and replaced by high earning ones. As soon as they are the average earners, even more wealthy people move in. Also with the rents, salaries go up, so people have the possibility to pay for their accommodation again. While in Berlin you could easily live with 40.000 Dollar/year, you'll probably have to add another 60.000 so people are at least somehow able to move to work for your new shiny SV company.
[+] [-] eli_gottlieb|9 years ago|reply
Because the real commodity being sold with the apartments and offices isn't net access or even land. It's proximity to rich people. It's not an open market economy; it's a feudal system in which you need to stick close to your patrons.
[+] [-] reverend_gonzo|9 years ago|reply
For anything else I may want to do (concerts, sports games, plays, comedy), there are dozens of world class options within a ten minute cab drive / 30 minutes on public transportation.
It's gotten to the point, where if there's a band I want to see, but they're in the suburbs, I'll just wait til they're back in the city.
I grew up and went to college two different small beach towns. There wasn't much of anything to do besides drink. If you wanted culture, you'd have to get in your car and drive at least an hour.
I have no desire to live outside of a big city, unless it is in the middle of nowhere, but in that case, I will still have a home in a city.
My guess is a lot of other people feel the same way.
[+] [-] bpicolo|9 years ago|reply
It's a lot harder for a company to hire top tech talent if they're in Miami / Des Moines, because the Bay Area has a much higher concentration of tech workers. Convincing people to move is hard, especially so for more experienced tech workers who have a life/family somewhere. You need to be getting an insane deal for it to be worth abandoning your friends and family/forcing your partner to find a new job (and I've yet to see tech companies trying to compete on comp vs SF/SV outside of them). Can't run off middle-road new grads alone (Edit: Good point below that top grad talent wants to hit the big cities too).
[+] [-] xienze|9 years ago|reply
Startups are built on young talent. Young people are obsessed with living in "the big city" and to hear them tell it, living in a suburb and driving a car is about the worst thing imaginable.
So if you want young talent, you better set up shop in SF.
[+] [-] lkrubner|9 years ago|reply
Some of the burden is on you to prove what has failed so far. If it is possible to build a successful large scale startup in Amarillo, why hasn't it happened?
I'll point out the theory of agglomerative clustering also includes the contrary point: a city that is great at something tends to exclude other activities, for any given amount of population. A city like Amarillo, which plays a role in the oil industry, is less likely to be great at software, because it plays a role in the oil industry. It's population would have to grow before it could be good at both.
Also, if two 20-somethings build a successful startup in Amarillo, they may want to move to San Francisco as soon as they have money. The "this startup can be anywhere" argument works both ways: yes it could be Amarillo, but if it can be anywhere then it doesn't need to stay in Amarillo.
And the startup can also move to Poland, or Romania, or India. If you believe the startup can be anywhere, then you basically believe that a startup would only be in Amarillo by random chance. If there are 100,000 great cities in the world, and all of them equally good for a software startup, then the chance of a startup being in Amarillo is 1 in 100,000.
But in fact, there are good reasons why startups tend to cluster into certain cities. You should read "Why tiny Stockholm has the most stunning startup ecosystem since Tel Aviv" :
https://pando.com/2012/11/20/why-tiny-stockholm-has-the-most...
[+] [-] wjoe|9 years ago|reply
In the UK, there are tech jobs all over the country. But there are probably more in London than everywhere else combined, especially if you're looking for the start-up unicorn types. I lived in a smaller city for a while after university, but there were very few jobs to choose from that interested me.
I moved to London for one job in particular at the time, but also safe in the knowledge that it would be easy to find another job. I've had 4 different jobs in London since then, and it's never been very hard for me to find something else that's suitable and interesting for me.
The same holds true for most of my friends from university - many of the moved to London because it was the most obvious option for finding a tech job. So it has a further concentrating effect, that people are more likely to know others who are working in the capital city than elsewhere in the country.
If I was seeking a new job and open to moving anywhere in the country, I could find one somewhere outside of London. But if I was already living in another city, it might be harder to find a job without moving. It might not be quite the same in US, where there are a number of cities around the country that are a similar size to London, but in the UK there are maybe only 2-4 other cities that are large enough to have a wide selection of jobs in one industry, and none besides London with a population of over 1 million.
[+] [-] AJ007|9 years ago|reply
Pretty much it is a networking effect issue. The same reason why you are posting this on hackernews instead of reddit. Physical proximity matters a lot, even when work is digital.
[+] [-] Kalium|9 years ago|reply
Is it possible that perhaps there may be reasons for people to choose such an obviously irrational thing? What do they think they're getting out of it?
Many companies have found that they benefit significantly from physically proximate workers. There are distinct benefits to putting people in offices in person. On top of that, having many such companies in one place is beneficial to the specialist worker. It mitigates risks of unemployment, and enables workers to take greater risks.
Myself, I've done what you suggest. I took a job in a cheap place. It was great in some ways, and terrible in others. When I decided I was done with the job, I had to leave that city. There just weren't many options for me there. I understand why a businessperson would like it - you get more leverage over cheaper employees - but it's not the best choice for me.
[+] [-] laughingman2|9 years ago|reply
https://www.youtube.com/watch?v=lyHgMNuftL0
Zoho's CEO feels that good software products can be developed not only in silicon valley or even big cities like Chennai and Bangalore, it can be developed in non-descript towns like Tenkasi too.
I think with more accessibility to digital media, and expansion of skills through internet education, skills can be diffused across geography, atleast in our field.
[+] [-] AlexB138|9 years ago|reply
[+] [-] davidf18|9 years ago|reply
Rent-seeking was first illustrated by David Ricardo in the mid-19th century (IIRC) and surprising that the author did not cite the true reasons for the rising housing costs.
Harvard Economist Edward Glaeser and Economist and Financial Times writer Tim Harford among many others writes about this.
Remember, rising prices come from scarcity. Eliminate the scarcity and your eliminate the high prices. Reverse the zoning density restrictions and you get lower prices.
[+] [-] nosuchthing|9 years ago|reply
It also helps that Japan has a brilliant zoning system:
http://urbankchoze.blogspot.com/2014/04/japanese-zoning.html
[+] [-] nwah1|9 years ago|reply
While we want housing to be affordable, arbitrarily trying to reduce rental costs is futile. Rent exists. It is a reflection of the intrinsic desirability of the location. The only way to reduce the rent is if the location becomes less desirable and less productive.
So, really, it is a question of political economy... of who should own the rising value of land, since that value is not a return for the effort of the owners.
[+] [-] matt_wulfeck|9 years ago|reply
Attend a town hall meeting where they're discussing a new apartment building and you'll meet them.
[+] [-] Arizhel|9 years ago|reply
Yes, but why would you want to do this? Or more accurately, why would the powers-that-be in a given area want to do this? They already have their real estate, and they're profiting by the rising prices. Why would they want to bring prices down?
[+] [-] friedman23|9 years ago|reply
[+] [-] frebord|9 years ago|reply
[+] [-] supergeek133|9 years ago|reply
Yes it can, College Tuition is a great example. Instead of finding the cause and treating it, we just increase the amount of aid people have access to.
[+] [-] klenwell|9 years ago|reply
I recognize you're not trying to rationalize this, but you've identified the common factor to each bubble: a new and unsophisticated source of investors being aided by the financial industry.
With the dot-com bubble, it was daytraders and online traders generally (including me). With housing bubble, new untraditional homebuyers who bought homes with exotic mortgages. With education, student who traditionally would not have gone to college going to college.
These could have all been positive examples of American upward mobility at work. But as was especially evident with the housing bubble, the financial industry turned people looking to improve their lives into consumers and, in many cases, exploited them.
With rents in metropolitan areas, it seems to be driven by wealthy investors (institutional investors and wealthy foreigners) pricing marginal middle class homebuyers (e.g. yuppie millennials) out of the market and then turning around to rent to them. Renters, like tech workers and young white-collar professionals generally, can stretch to afford these rents. But they definitely have a ceiling and all of this has been fueled by a growing economy. As soon as the economy falters, aid will dry up and the roof will cave in.
[+] [-] acchow|9 years ago|reply
This is a cultural phenomenon. We're "supposed" to get our children the best education we can possibly afford, otherwise we are bad parents. Since colleges don't have price discrimination, this essentially means tuition is set at the absolute maximum that the middle class can afford - squeeze every penny out of them. This is why aid won't reduce the burden of tuition on the middle class (tuition will just rise to meet the aid amount). It's also why tax breaks won't help the middle class either (same idea), although the tax breaks can help those above the middle class (since they have a higher tax rate, and the tuition rises to match exactly the effective aid for the middle class).
[+] [-] startupdiscuss|9 years ago|reply
[+] [-] ceejayoz|9 years ago|reply
[+] [-] nosuchthing|9 years ago|reply
[+] [-] yladiz|9 years ago|reply
[+] [-] rpazyaquian|9 years ago|reply
[+] [-] carsongross|9 years ago|reply
https://en.wikipedia.org/wiki/Georgism
Georgism was wildly popular in the United States, but was memory holed after WW2 (along with distributism and Texas-style populist banking).
[+] [-] trapperkeeper79|9 years ago|reply
As a mid-30s person with a new baby, I don't see how the numbers work for new entrants to the housing market - unless you were a gambler. Your gamble would be that (a) you don't ever take a hit on your income, and (b) property prices continue to rise. We've been unable to take that gamble .. and homes have increase 40% in the blink of an eye.
In Canada, we have a lot of family in the GTA. We're basically priced out of areas as far away as Mississauga and Milton (Milton went up 20% since Nov 2016). An option we are considering is to move to BC and just rent for a few years in Vancouver. At least we get a better city out of it. For any Canucks, are there any other decent places with tech jobs, and somewhat affordable housing?
[+] [-] cletus|9 years ago|reply
In NYC you have an ultra-wealthy enclave around Central Park and pretty much the rest of Manhattan really requires winning an affordable housing lottery, being an incumbent or being in the top 10%.
That might seem like a problem but it's not. Or at least not a huge one. Why? Because there are affordable options within reasonable distance with public transit (eg NJ, Queens, the Bronx).
Compare this to the Bay Area where there's really nowhere affordable to live.
So rents here are a proxy for property values. The author is right that property values have a natural ceiling but that's in the macro sense. There can be (and are) enclaves that are only the domain of the rich (eg lower CPW, CPS, 5th on the Park).
This sort of thing tends to have a flow on effect which is why gentrification tends to radiate outwards.
So you end up with a situation where you can buy an apartment on 57th for $100m and 30 minutes away you can buy one in Queens for $150k.
That's actually a pretty healthy situation (IMHO). It also means that property values in Manhattan, for example, still potentially have a huge amount of upside.
[+] [-] tutufan|9 years ago|reply
[+] [-] ctdonath|9 years ago|reply
Being able to work from anywhere, there's no reason for me to stay anywhere near a megacity (which I find expensive and distasteful). As employers discover the cost savings of telecommuting, employees will discover the cost savings of moving out of megacities ... and prices will slow, flatten, and perhaps even drop.
[+] [-] humanrebar|9 years ago|reply
What I mean is that they almost exclusively look at local market prices for developers. They don't generally factor in what developers can make in the big cities. Now, some do, but generally they just apply the inverse of a cost-of-living multiplier and make that offer. That's problematic because then our savings rate, something that should be measured in absolute terms, is being reduced.
Anyway, point being, if I add up my benefits, savings rate, and cost-of-living adjusted expenses, I end up with a big number for most non-coastal-U.S. employers. I then have the risk of branding myself as an overpriced prima donna, especially if I'm seen as a cost center instead of as a strategic resource.
[+] [-] nfriedly|9 years ago|reply
Yes! I lived in SF for a year, but then moved back home to Ohio and went back to working remotely. I occasionally travel to bigger cities to work with colleagues (maybe 3-5 trips a year), and this feels like a much nicer balance.
I also earn enough that I could live like a king around here... or live on a more "normal" income, save the extra, and retire at ~45.
[+] [-] ssivark|9 years ago|reply
If the finance industry keeps skimming a fraction of all the money flowing through it then financial hubs like New York city and London could keep becoming more expensive.
[+] [-] diogenescynic|9 years ago|reply
[+] [-] Finnucane|9 years ago|reply
[+] [-] brilliantcode|9 years ago|reply
It's unbelievable how relatively expensive rent is to income.
I'm beginning to wonder why I'm putting up with Vancouver.
I'm thinking I will take the first train out of here but that doesn't seem to be coming.
[+] [-] trapperkeeper79|9 years ago|reply
Can you shed light on why you are fed up with V? Where else are you considering?
[+] [-] bdrool|9 years ago|reply
[1] (And the people they have somehow brainwashed into being on backing them up, despite it being against their best interests.)
[+] [-] jandrese|9 years ago|reply
[+] [-] psyc|9 years ago|reply
[+] [-] orangecat|9 years ago|reply
Increasing supply. Which in this case is difficult due to the alliance of existing property owners and useful idiot "anti-gentrification" protestors.
[+] [-] legulere|9 years ago|reply
I do not buy this. In the countryside the economy is backed by the local resources (forestry, agriculture, if it applies fracking etc.). The rest of the economy in the countryside lives off the money brought in by those, and especially off the wages of the workers.
The more automatisation you have, the less you need people spread out. The trend is that things get cheaper and need less work that is more centralized. What you need to be able to do is creating new things, and that is easier in centralized megacities.
[+] [-] aljones|9 years ago|reply
[+] [-] clock_tower|9 years ago|reply
[+] [-] mcguire|9 years ago|reply
[+] [-] sgron|9 years ago|reply
[+] [-] amyjess|9 years ago|reply
For example, this doesn't explain Tokyo. Japan's capital of creativity is Osaka; Tokyo doesn't even come close.
[+] [-] unknown|9 years ago|reply
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