Watchthere are times the SJMN actually publishes articles that are more sober and dont cling to hype. This is one of them. Had you been in the SFBA back in the 70s-mid 90s during our greatest boom years.. it wasnt that expensive.
Bay Area's business climate is less friendly to startups than other parts of California, says study
By George Avalos
Contra Costa Times
Posted: 10/18/2012 10:43:17 AM PDT
Updated: 10/19/2012 08:10:22 AM PDT
Relatively expensive housing, coupled with the high cost of living and doing business in the Bay Area, has made the nine-county region less hospitable to new companies than other big urban centers in California, according to a study released Thursday that urges improvements in what it describes as this area's burdensome regulatory climate.
"You have to ease the regulations that people face when they want to launch a new venture," said Jon Haveman, chief economist with the Bay Area Council's Economic Institute, which produced the report. "If somebody is trying to start a small business and spend a small fortune on a new home, they will probably start that business elsewhere."
The Bay Area lags major rivals such as Los Angeles and San Diego in jobs created by startup companies, the study determined.
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B.A.C.A.H. says
Possibly the best summary I've ever seen of the region's bubble economy. As Bubbles Ben and his Fed cronies suppress yields for the express purpose of reflating the housing bubble, "investors" (speculators) chase yield by wagering on startups and real estate. The slick cons cash in, but it all depends on the suspension of disbelief, so it creates a whole patronage network dependent on people believing that trees can grow to the sky, that WebVan or FB can achieve infinite value, etc. They're socially much nicer than the religiously deluded fools who ruin other places (e.g. the trailer park residents whose donations made Pat Robertson a multi-millionaire), but still as delusional, the difference being that their delusions are secular. While South Carolina Republicans put their faith in Our Lord and Savior Newt Gingrich, the Silly Valley / Slick Con Valley economy depends on the gravy train flowing from Pets.com.
To be fair, AAPL and GOOG and even FB are real businesses with proven earnings, but their valuations depend heavily on speculation about future growth (especially FB), and the whole sector is priced like a millenial soccer game: everyone's a winner.
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B.A.C.A.H. says
Great post, I think that it summarizes the relatively bleak future awaiting the middle class in the SFBA. Many of us appeal to our own common sense when looking at things here and think that it can't possibly get nuttier. Unfortunately, there is no natural law saying so, and in fact there are legislative laws on the books that only further encourage the insanity. It bums me out since I am a BA native and wish that I could enjoy the life that my parents did here, but it is looking highly unlikely. Sure, I could bust my ass to make payments on the biggest mortgage I could possibly swing to have a house like my parents, but unlike them I would be barely scraping by just to keep up with the payments. They definitely scraped for a number of years, but that was due to having a house and two kids. I think that I would be scraping with JUST a house, and as far as I can tell I earn much more inflation-adjusted money than they did at the same age.
Make no mistake, the system is rigged. For now, the rigging is holding fast in this great scheme and the scheme sails onward. Who is rigging it, deliberately or involuntarily? The Federal government, the state government, the entire finance industry, existing home owners (especially underwater ones) and most of the yield-seeking baby boomer generation that has a largely unfunded and rapidly-approaching retirement. That leaves renters as the only group that wants a lower cost of living, and less than 50% of Americans are renters. As far as I can tell, this next bubble may just burst hand-in-hand with the rest of our unhealthy economy, and at that point it will probably look somewhat like a depression where nobody cares about house prices very much being that everyone will be reminded why food & water are called "the basics". Doom & gloom, I know. It happened in the 1930's with a smaller bubble relative to the size of the economy at the time, and I think that the various forms of financial wizardry employed now will all fail soon enough. I hope everyone likes re-runs!
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Nothing can go on for ever. But when you are fighting against the arsenal of the FED and their unlimited printing presses-well the timeframe may be very long.
But somehting will give-too much stuff going on in the world for things to stay the same for ever.
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lostand confused says
Agreed. Unfortunately, I am not sure that the next housing crash will resemble that of 2007. Housing might just be a passenger on the sinking ship that is our entire economy. (yes, I love metaphors)
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MershedPerturders says
I'm not an Arizona hater, in fact I think it's great that the cost of living is so low, wish we had some of the Arizona kool aid here in SoCal, but to call Arizona a "viable alternative" is a big stretch. Maybe if someone in California lived in the high desert like Victorville, then maybe, but I doubt anyone who has lived in areas with more moderate climate would ever consider Arizona a 1 to 1 viable alternative.
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Well, I'd take the dry heat over bugs & humidity to be honest. That and they have some really great rock for climbing!
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E-man says
Ron Gonzales, former San Jose Mayor can tell you all about it, after all he was also the Mayor of Sunnyvale back in the 70s.
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tannenbaum says
Nadda,,, fact is it was more expensive in the North East and SoCal.. but not Santa Clara county. Frankly, no one every even herd of Santa Clara... Expensive if your talking Mill Valley / Marin...
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bmwman,
I came from a country where we experienced hyperinflation 2 or 3 times over a period of 7-8 years. Every single time, real estate came out smelling like a rose. For this reason, my people didn't trust the currency so they only owned hard assets. Houses were selling and buying with gold as the norm. No one bought & sold with silver. However, the biggest difference was that no one had a mortgage in my country. All houses were owned free & clear.
Because of my past experience, I have been contemplating buying some physical gold, not silver, as a hedge. Say the dollar is losing its value due to hyperinflation. Your $1M mortgage may feel like $100k. At that time, you could sell some physical gold & pay-off your mortgage.
Again, it's just a hedge against hyperinflation. However, RE tends to go up a lot due to hyperinflation although it doesn't go up as fast as hyperinflation. In this scenario, both RE and gold will go up because both of them are hard assets.
Having a lot of cash is fantastic during deflation. However, what's the likelihood of us experiencing deflation with the massive printing of the U.S. Dollar?
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I think I read that gold mining stocks went up 900% or something like that, during the Depression.
http://www.presidency.ucsb.edu/ws/index.php?pid=14611&st=&st1=
By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled "An Act to provide relief in the existing national emergency in banking, and for other purposes," in which amendatory Act Congress declared that a serious emergency exists, I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of this order:
Section 1. For the purposes of this regulation, the term "hoarding" means the withdrawal and withholding of gold coin, gold bullion or gold certificates from the recognized and customary channels of trade. The term "person" means any individual, partnership, association or corporation.
Section 9. Whoever willfully violates any provision of this Executive Order or of these regulations or of any rule, regulation or license issued thereunder may be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both.
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E-man says
What currency was that?
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Housing is high because wages are high. People can afford the higher housing prices, and they demand higher wages to pay higher housing costs to get more of the prime real estate.
There are a lot of people in this area, there is limited land. There is a huge bay, several bridges, mountains. There are obstacles everywhere, it's not easy to get from one place to another. So land in prime areas is obviously going to be worth a lot.
The people who aren't in start ups (or not being paid very well) are forced out, they're forced to live further and further away, giving away more and more of their time to commuting.
If people didn't value their time, they would all commute in 5 hours each day, and land wouldn't be worth that much. But we all have limited time, so we're willing to pony up for short commute times.
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This article is an interesting summary of the current situation:
“Silicon Valley: the place is synonymous with bright ideas, fresh fortunes and sunny forecasts. But right now the mood in this region 40 miles southeast of San Francisco suggests a name like Gloomy Gulch.”
“Says a city councilman in Sunnyvale, as he recalls the glory days: “Instant millionaires. Every day there was a firm doing a public offering and spin-offs being created. Everyone was on a high-tech surfboard. It was a lot of fun.”"
“Nothing provides a better testament to the past decade’s growth binge than the headlong rise and subsequent stalling of home prices in Santa Clara County.”
“Short of a product revolution, nothing on the horizon promises to bring a quick fix to the area’s economy. “In the past, our recessions have been shaped like a V,” says Richard Carlson of Spectrum Economics, a Mountain View consulting firm. “We dropped down sharply but came back roaring. This time it looks more like an L.” ”
http://www.time.com/time/magazine/article/0,9171,974295-1,00.html
oh, btw, check out the publication date.
1991!
Thomas, I wonder, if SV is doomed, then why not sell your house while the selling is good? You could rent in your Fortress n'hood for less than the mortgage or opportunity cost. Patrick's calculator shows that it's cheaper month-to-month to rent, so the only reason to own is if you think there will be appreciation or rent increases. Or if you just like owning for intangible reasons, but that's an unpopular view on this site.
This is not a personal attack, just curiousity. I own both because I think SV will continue to do well, and the intangibles such as being able to remodel, not being forced to move, etc.
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The middle class jumped ship in the immediate Bay Area a long time ago. The ones that are still here are only here because they bought a long time ago. When I rented a house in our last neighborhood I'd say about 50% of the homes were owned by squarely middle class people who could never afford their own houses if they bought today on their wages.
Its also been expensive for a long time as well. For example, I can use a comparison between my home state of North Carolina and California in terms of when people in my family bought and when people I've met in the Bay Area bought. For example, my Grandparents bought their first house in the 50's in NC for around $8,500. Meanwhile one of the older neighbors near where we used to live had also bought at about that same time and had paid around $26,000, or almost 3 times as much for the same type and size of house. My parents bought a new house on about 12 acres of land for $40,000 in the mid 70's. Likewise our former next door neighbors bought their falling-apart ramshackle Victorian home at about that same time for $90,000, or more than twice as much for a crappy house on a tiny lot.
Anyone "new" who bought a house in our old neighborhood tended to make quite a bit of money. As in execs, lawyer, engineer types driving Bimmers. So there was a stark contrast between they and their elderly neighbors except they lived in the same types of houses. Its a sort of gradual cyclical thing.
So its been expensive and grossly more so compared to elsewhere for decades now.
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I find it odd that we're talking about California not being competitive when there are 30 offers on every home for sale from people being fiercely competitive.
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The article was about the middle class- who probably aren't making those offers.
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iwog says
Now now iwog, you know that you are purposely mixing up two different types of competition. There is a difference between local areas competing to attract businesses and hordes of consumers fighting over real estate's table scraps. You do seem to like arguing for the sake of arguing, so I patiently await your response where you tell me that these two completely different things are actually the same thing.
Plenty of major employers are opening new campuses in other parts of the nation because they can get the same quality of employee for a lot less money thanks to lower living costs. Start-ups still seem to be "in" around here, but the established employers know that the law of diminishing returns is in full effect by trying to expand here. Apparently even start-ups are finding the SFBA to be prohibitively expensive, at least if the SJMN article is correct.
The housing boom seems to be back in the SFBA, for all sorts of completely different reasons than last time. There is lots of data to support that. How long will this up-cycle last? I am not sure. Perhaps as long as the federal government continues to exist, perhaps next week. It is hard to tell. I think that this trend will only further injure the SFBA economy as more and more of people's income is siphoned off into unproductive alleyways like rent and mortgage interest, and as employers see their returns from investing in growth here diminish further.
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edvard2 says
Probably true, but it begs the question of which demographic will own the Bay area?
There's nothing that says this economy can't be dominated by the aristocracy. I grew up near Lafayette, and I know plenty of old families from the 1970s who are still living here and finding homes for their children.
Dubai is a perfect example of a nation with no real economy yet sky high prices and money everywhere.
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Maybe we should try 120 year mortgage loan terms, interest-only payments, and eliminate down payment requirements to make things more affordable? How about just flat out paying portions of mortgages for homeowners who cannot afford them?
Oh wait, I'm thinking like a democrat.
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iwog says
Sadly, this is what I think will be the case in the SFBA. There are quite a few people that I know (through work and acquaintances) that are in their mid-20's and own houses all along the peninsula ans east bay. Their parents gave them the money to do it. And here my fiancee and I are, a few years older than them, still trying to save up the money to put down on lesser houses. As far as I can tell, the SFBA has become a psychotic salt lick for the monied, and it really won't matter if anything productive occurs here; it will continue to become more and more expensive. It certainly would not be the first place where this happened, so people shouldn't discount the possibility.
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anon12366 says
No, you're thinking like a Republican. For large corporations, Bush made unlimited amounts of money available at 0% interest. Not just bullshit fantasy like your 120 year mortgage, but in the real world.
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iwog says
Yeah, but would you or anyone else want to live there? I don't know about others, but having grown up in a lower middle class family and then having been around rich communities, I absolutely hate that sort of stuffy atmosphere. Everyone driving bimmers, sending their kids to private school, and never saying hello to their neighbors ( because they have gated fences around their houses)
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edvard2 says
I don't want to live here. I'm stuck in Lafayette because of family and schools. I'll be getting the hell out of here as soon as my son turns 18.
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Oh, I didn't mean where you live specifically. I meant what if the whole Bay Area becomes one huge gentrified hellhole. I don't particularly like hoity-toity neighborhoods since all of the character has been sucked out. So if the whole BA went that way, that would sort of be a bummer.
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iwog says
LET THEM EAT CAKE!!
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edvard2 says
That's the thing though, there ARE people that like that. Once an area starts getting those types, they usually have friends and then it kicks-off a positive feedback cycle where the more of them you have, the more you attract. I think that I am giving the "long" definition for gentrification. Gentrification certainly doesn't have to stop at upper-middle-class levels though. I hope that it does not come to that here, but it is not impossible.
There are a lot of people all over the US and world that have lots of money and that do not want to live with "lesser" people. Heck, I think that many of the middle class folks here do the same thing by trying to make sure that their kids don't end up in a school district with a bunch of brown people. The wealthy think the exact same way, but can afford to live where they want and (to an extent) reshape the area that they live in to fit what they want.
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bmwman91 says
Apparently, back in the 1950s The Hamptons outside of New York was essentially a middle class playground for engineers serving the large manufacturing base in the city. Eventually, New York was no longer competitive in manufacturing, as finance and the like caused manufacturing to seek less expensive environs.
By 1970, it was over. Suddenly the hamptons became "The Hamptons", and scores of middle-class folk who maybe 10-15 years before could buy, essentially were now priced out. Its interesting to think how many recongnized the trend when it was happening, versus those who decided to wait it out, in hopes The Hamptons would "revert to the mean".
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There's definitely some noticeable gentrification happening in the east bay- in particular parts of Oakland. A lot of hipsters and yuppies are moving into some of the neighborhoods that wern't that great when I first moved here. On one hand I guess its good for the local economy. On the other hand when hipsters move in, they're usually followed by the wealthy and then before you know it- shebang, another part of the BA turned into another gentrified area wafting of pretentiousness and hand-wringing parents only wanting the best schools, and yadda yadda yadda
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edvard2 says
Edvard2, thanks for pointing out that SV has been expensive for many years. It hasn't been cheap here since it was prune orchards 100 years ago, but there's a common thread that says "it's only recently it was expensive, one of these days it will be cheap again." It's possible, but, if it is cheap here, it probably won't be so pleasant, because it would become cheap if/when the economy degrades.
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Frankly I don't get the moroseness of this thread. It's like you think the Stanford grads that have the energy to start companies are some sort of pretentious elite that don't work hard. You think Sandy Jen who founded Meebo in Mountain View didn't work super hard for years? How about the folks over at Guidewire? There are plenty of little companies out there with people putting in lots of sweat equity and if they get rewarded handsomely, that's their fault?
This bitterness about people having the money to buy their homes after years of undergrad and graduate educations seems oddly un-American but whatever....
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bmwman91 says
B.A.C.A.H. says
B.A.C.A.H. says
B.A.C.A.H. says
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pkennedy says
I find it funny that you say people can DEMAND higher wages.. Clearly havent worked in this region long enough to understand any and every employer has already pulled plenty of local jobs and sent them elsewhere.
Why ? to expensive given you can do much better elsewhere. Every CEO will state that even former CEO of HP Mark Hurd you pretty took a hatchet to salaries not to mention positions.
There is no leverage for higher salaries/wages given complex market conditions.
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SiO2 says
Yes, we are in the long run doomed if prices do not decline to greater balance. As for differences since 1991 to today... There are many. Today its even more hype vs none back in 1990s. You can pretty ask many former CEOs of SV be they Founders of Intel or Sun Micro Systems. http://pressheretv.com/?p=2710
We had a great economic growth curve from the 1970s to 2000 built on real industries. By early 1990 nearly 300 large public companies and 400 by year 2000... more recently we are down to 200 small to mid size companies.
What do you have to show today.. media companies built around hype and some fantasy clicks valued into the Billions! there is a sucker born every minute...
http://www.siliconbeat.com/2010/02/17/vanishing-public-companies-lead-to-the-incredible-shrinking-silicon-valley/
The real view on Pnet site is ...markets have a way of correcting them self.. that was the lesson in 1991.. and it sure hasnt changed no matter if new players has entered the game.
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B.A.C.A.H. says
Hollywood like so much of SoCal... its been around and attracted fools and hustlers for years and ageless decades now... but not even SoCal has escaped the long term trends...
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DukeLaw says
I do take offense to your comments... and here it is sweet and simple...
havent what you said above also been true for decades past without
the need for highly inflated IPO stock bubbles and housing bubbles.
so why weren't home prices much higher back in pre-2000 years/decades ?
what your repeating is no more than recent media hype after year 2000 and certainly after the hype machine of Google mania.. where was all this when you actually had real economic growth ?
of course would you pay for GW with 116x next years earnings... thats insane even if you were to compare when Cisco went public back in 1990s at 15-20x next years earnings.
The sound reasonings for financial valuations has been lost to the general public.
If we lost the fight for education in Math and Science.. might as well add Business/Finance to that list.
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SiO2 says
No! your both wrong and no need to go back 100 years or 50 years...
but certainly more recent 15 years ago.. I bought nearly 20 years ago.
our local tech economy was certainly very strong in the 70s and 80s and we didnt
have high home prices... thats obvious. No matter if you use the chart below or archive info from DQnews.com
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CDon says
You could have said the same about LA / San Diego as well and we pretty much saw prices do correct as they did back in the early 90s and more recently. How do you dispute corrections for SoCal... Its not the limited land or what ever but the mind set of more recent migrants to the region. They overprice housing well above it actual intrinsic value but that seems a problem in many various other parts of our economy.
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bmwman91 says
LOL! one can certainly see that on any episode of "Housewives of Miami"...
Had the same housewives moved to Palo Alto.. im sure they would get depressed and leave very quickly.
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thomaswong.1986 says
They would have been laughed out of town for buying organic food that was not also of fair-trade origin. Silly yokels, don't they KNOW how to live with the local ethic? They probably don't even have Obama stickers on their Prius.
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B.A.C.A.H. says
B.A.C.A.H. says
iwog says
Friends, please listen to the "local kids": bmwman, thomaswong1986, iwog, B.A.C.A.H.