So I was at one of these companies when the scandal broke. I didn't get screwed quite so much as my coworkers, since I'd only been working there for a year or so. The settlement was a joke - I got about $1100, but my compensation increased by roughly $100K/year the year after the cartel broke, and kept rising. Can't say I'm terribly pleased about either the wage-fixing or the settlement, but...
My wife works in philanthropy, and one of her jobs is investing in homeless shelters. We were talking the other day about how the Bay Area's housing/homelessness crisis is a direct consequence of the collapse of the high-tech wage-fixing cartel. Before 2010, the wage distribution from one of these huge companies was that founders and VCs would make billions, ~1000 early employees would end up with millions, and the rest of the employees live comfortable upper-middle-class lifestyles. The ~1000 employees who could cash out pre-IPO stock options would bid up prices in Hillsborough/Atherton/PacHeights/Woodside to ~$5M, but the rest of the Bay Area would be priced at what an ordinary professional could afford. After the cartel broke, the compensation structure changed so we have ~100K engineers each making ~$300-400K/year. That's enough to buy all the available housing inventory in the region. So now house prices in Mountain View and Sunnyvale go from $800K -> $2.4M, and you must be a dual-tech-income family to afford a house.
I say this not to imply that the cartel was a good thing (cartels are bad, and I'd much rather the solution be greater wage equality for everyone and building more housing so everyone can stay in the area), but to highlight the problem of unintended consequences. I've seen many people ask "Why don't companies hire remote workers at Silicon Valley wages?" and in the same breath say "Because I would never move to the third-world hellhole that the Bay Area has become", not realizing that if they did hire remote workers, the same thing would happen in their communities. Inflation is the flip side of higher wages; when everybody gets paid more, everything costs more.
>So now house prices in Mountain View and Sunnyvale go from $800K -> $2.4M,
This just proves that the housing crises was the same before. A regular middle-class income cannot afford an $800k home. The problem is the same before and after: there isn't enough supply for people who want homes.
Until you look at sales numbers and supply, your analysis is meaningless. Increased wages don't make housing prices increase.
>not realizing that if they did hire remote workers, the same thing would happen in their communities.
Again, this is bullshit. Google could hire 10,000 remote employees at SV wages in somewhere like the Detroit area and it would have a negligible impact on housing prices because the supply is so large.
Remember, techies still make up a tiny percentage of the bay area population. 1% of the population being flush with cash should have absolutely zero impact on a healthy housing market.
I don't deny that the root cause of this issue is lack of supply. I'm saying that over short time periods (and sometimes over long ones where NIMBY policies rule), lack of housing supply is a given, and so the consequence of more money for housing is not more housing, it's higher housing prices.
1% of the population being flush with cash has virtually no effect on a housing market where 5% of the housing stock turns over every year. It has a very large effect when < 1% of the housing stock turns over. If people start seeing an effect, they have every incentive not to turn their house over while its value is still going up. Right now, Mountain View has 111 homes for sale in a city of 80,000. Sunnyvale has 156 in a city of 150,000. Cupertino has 56 in a city of 40,000, San Francisco has 706 in a city of a million.
Realistically, if these big tech companies offered full remote work (which they actually do, if you've been at the company long enough, but a relatively small portion of the employees meet the tenure & job performance requirements), you wouldn't get 10,000 remote employees in Detroit. You'd get 100,000 remote employees who are free to move around the U.S. to whichever city they prefer most. It's highly likely they will clump in cities that are desirable for techies - Seattle, Portland, Boulder, Austin, Boston, NYC, Pittsburgh, Raleigh-Durham. All except the last 2 are already getting their own version of a mini-housing-crisis, but not to the extent that the Bay Area is.
What would you say the "dark horse" second or third-tier tech cities are in the US right now, the ones that still have good infrastructure and quality of life but aren't suffering from a housing crisis?
> if they did hire remote workers, the same thing would happen in their communities.
That's nonsense. There's a severe shortage of housing in Silicon Valley despite the fact that there's an abundance of housing in most of the country. Hiring remote workers means that you're hiring all around the country/world and people can move, not hiring in any one community. Also, hiring remotely means you can pay much less than Silicon Valley compensation because landlords aren't leeching an enormous bulk of it.
Silicon Valley could solve its housing problem tomorrow if it fixed its ultra-restrictive zoning laws, ended Prop 13, and built a ton of apartments. It won't do that because the people in power place the interest of wealthy landlords above that of the average people who live there.
Another (minor) nit, in my experience you have always needed to be a dual tech income to afford a house in the cities near the bay. My wife and I bought our first house in 1984 for $153,000 and it required us to both be working well paid tech jobs. You can also buy a house usually if you have a lucky equity break and can use that to pay big chunk down so the mortgage is affordable on a single income but as far as I can tell buying a house on a single engineer's income, that is near the center of activity, hasn't been true since the early 70's or so.
I dunno - my in-laws bought their house in 1986 on a single engineer's salary (then renovated it into a bigger one when my mother-in-law went back to work). I also had a number of coworkers at Google who bought houses in 2009/2010 as single tech workers. Heck, I could've done so myself (2BR condos in MTV were going for $400K at the time), and am kicking myself for not doing it.
Perhaps 09-10 was a bit of an aberration because it was the middle of the foreclosure crisis and housing prices bottomed out then. I guess another big "thing" is parents (particularly Asian ones) paying the down payment for their kids - 2 of the 4 coworkers I'm thinking of had that help, and one had a minor stock-option windfall from joining a company right before Intuit bought it.
Fair enough, but where? Back in the 80's when we bought our house in Sunnyvale, we could have bought one for much less either Livermore, Fremont/Milpitas, or South San Jose for much less but the commute would be high. Pretty consistently the outlying areas are about half the cost of the cities actually by the bay. Would love to hear more data points.
> By one estimate from the California Department of Housing and Community Development, the state needs to build 1.8 million units over the next seven years just to keep pace with population growth
You need to build about 257k just to keep up with growth, not to address any sort of shortage. This to me should sound like a builder's gold rush. Why are builders not flocking to CA to build? Are there some stringent set of regulations that greatly reduce the economic feasibility? Is this Prop 13 proving to be a failure?
NIMBYs. Builders want to build, but the people who already own won't let them in most cases. I live in Cupertino. They want to build 2000 units next to my house. Most of neighbors are against it because it will "change the character of the neighborhood". That is true, it will. But I'll be the farmers who lived here in the 1960s said the same thing when all of our houses were built as the farmers sold their land.
The main difference this time is that the current residents can't get rich selling their land because the developers want to build up, not out.
CA tried to solve this with SB 827, which would force upzoning near transit. Sadly, it was poorly written and failed to pass, but it was a good idea. It would have forced pretty much all of San Francisco to allow building medium size buildings in place of existing single family homes. And a lot of the rest of the Bay Area too.
I have heard the NIMBY argument many times before but I just don't buy it. It's too easy of a target. Plus there is so much land. Ok fine, won't build in your backyard, I'll build in the next yard over. We have this exact situation in a town called Davidson, NC where I am from. Builders can't build there. So they built in the hundreds of thousands of acres immediately right next to it. Problem solved.
Plus people exercising their right to let things happen or not happen on land and electing to do what is in their own best interest sounds fine to me and nothing to be vilifying. It sounds like to me the "NIMBY" finger pointers are just upset that low cost housing isn't built in neighborhoods they want to live in -- that is, it is being portrayed as some altruistic goal but really has self interest in mind.
Even if I conceded your point about NIMBYism, it may explain a very small part of the problem, but it absolutely does not explain why builders are not flocking to a state with a 117k/yr housing shortfall to figure it out.
They've already done that. Average commute times in the big cities are 70+ minutes each way. There is only so far people will commute regardless of price.
That 117k/yr shortfall is not evenly spaced. All the jobs growth (and therefore the need for housing) is localized in the cities. They can build 200,000 units in the central valley where there is a ton of land, but no one would go there because there are no jobs, and it would be a 3 hour commute each way to the city.
The only solution is to build up, not out. We've already done all the building out that we can. And the NIMBYs are blocking the "up" growth because they want their cities of single family homes.
NIMBYism alone also isn't the problem per say, it's zoning plus NIMBYism that makes things hard. A vocal minority can effectively block zoning changes, which prevents developers from building high density housing. This is exacerbated by CA's so-so to terrible public transit. High density housing is far more annoying for whoever lives nearby when everyone living there has a car or two and the builder didn't also build a parking structure for those cars.
This is mostly a problem for coastal California too because land is limited and expensive. In inland California a developer can just buy and build someplace else.
Builders seem to be following the same playbook as the private equity firms who bought up homes to rent/flip, which is to limit supply to keep upward pressure on prices.
I've seen regulations brought up as a reason why there isn't much new construction, but other states with similar building code/environmental regulations don't seem to have the same problems.
The exception to this IMO are zoning regulations. When those limit high density housing, eg condos/apartments, they can serve to substantially increase home prices. But, that's assuming builders are willing to build enough units fast enough to actually reduce unit prices, and they've consistently shown they will not do that.
Prop 13 could contribute somewhat too, but I imagine it's effect is also much smaller than private equity and builders limiting supply.
It's just exposed and accelerated an underlying issue in housing policy. When demand goes up supply is also supposed to go up to meet demand in a healthy market, but because of artificial supply restrictions this is what happened. The government is to blame.
New housing development plans in the Valley, especially plans for higher-density developments, suffer from zoning restrictions arising out of “NIMBY” attitudes at the local level.
However, I don’t think that’s the state or federal government’s responsibility to change. If American government is truly to be “of the people, by the people”, then the people’s decisions at the local government level ought to be respected, including letting them suffer the consequences of bad choices.
If anything, the local zoning issues should be fought via campaigns to persuade local voters of better approaches. Fight a bad idea with a better idea. Not every local policy problem should be fixed with a new law from the state or federal legislation, or with federal/state funding incentives.
> including letting them suffer the consequences of bad choices.
The people voting NIMBY don't suffer any consequences though. VCs and big tech companies are happy to throw money away on higher salaries. Prop 13 keeps property taxes low for existing homeowners. The only people who actually suffer are those forced into homelessness and (to a lesser extent) those paying ever-higher rents for aging housing.
I don’t see why there’s anything inherently better with having this happen at the local level vs the state level. If a majority of Californian voters have elected state legislators who will vote for these policies at the state level, that’s just as valid, and still a completely democratic, path towards change as having it happen city by city.
That’s a road to not only maintaining the status quo but worsening the root cause. If you ask people if they’d like their home prices to fall and new people to move in, of course they’ll vote no. The problem is that many people who are hurt by NIMBY laws don’t live in the relevant cities. They live somewhere else in California, or in Wisconsin, or Nebraska, or Georgia.
You are widely assuming that because a pie was split to 10 people instead of one, there are more money buying houses. That's plain wrong. There is still a single pie. Houses were bought just the same, but by one person instead of 10. I don't know how much more first home purchases facilitate this when there are 10 people instead of one, but I doubt it had any impact since those folks are buying more than one house themselves anyway.
In the end, the only thing that prevents housing prices/bubbles, is denser desirable residential areas.
There might be other factors, but one is definitely NOT money distribution schemes from the top 1% to the top 10%.
I know a number of pre-IPO Googlers, as well as a couple folks who have struck it rich with startups. For the most part, they own their own (pretty nice) home, and have little interest in owning other homes. A couple owned double homes, a big suburban one in the South Bay and either a condo in SF or a beach home in Santa Cruz that they could stay at for weekend getaways. One guy owned homes near every Google office that he would regularly travel to, but since they're in different cities, they don't do much for Bay Area real estate prices.
For the most part, people who got rich in tech tended to invest fairly conservatively in conventional index funds etc, and do a bit of dabbling in angel investing on the side. (Another unfortunate unintended consequence of the huge Silicon Valley wage increases is the near-collapse of the individual angel funding market; it used to be someone could write a check for $100K and sustain a founding team for a year or more, but that's increasingly difficult with Bay Area housing prices.) That makes perfect sense: another cardinal rule of investing is to stick to what you know. People who go into real estate because they've heard real estate is a good investment tend to get slaughtered; like any capital market, there's a lot of subtlety to knowing where, when, how much, and how to buy. If your passion in life is software, these details are going to be terribly boring, and you probably won't be much good at them.
I also know a number of landlords. Interestingly, this group is largely disjoint from the people who struck it rich with tech startup options. They are largely ordinary high-paid professionals who are comfortable with leverage. They might use their salaries (and perhaps a little inheritance) to buy a duplex, pay that down a bit, then use the rental income to justify another loan on a small apartment block, fund the mortgage with cash flow from that, pay down principal, etc. The entry into becoming a landlord is made significantly easier if you're making $300-400K/year than if you're making $100-125K.
(Interestingly, duplexes seem underpriced in Mountain View right now - you can sometimes buy an old 3/2 duplex for less than a ritzy 3BR condo. That indicates to me that a number of home buyers today have no interest in becoming landlords.)
How many of them are rich people who previously founded or worked as an early employee at tech companies?
I've spent plenty of years renting apartments from investment properties owned by rich people as well, but every single one of them has been a rich person (or corporation) who borrowed money from a bank to buy a multi-family property, not someone who cashed out a startup and invested the proceeds in real estate.
Just a nit: Inflation is the result of too much money chasing too few goods, so not everything increases in price. Electronics and mass consumer goods typically stay the same price. Only goods which have limited supply and no substitution get more expensive, like housing.
You’re confusing inflation with real prices. Inflation means that the level of prices rises. If house prices rise because local government forbid new construction then that’s an increase in real prices.
It's more complicated than that in coastal California. During the housing bubble, real prices were the same and new home permits were double to triple where they are now.
In that situation, relaxed lending standards and easy money from the Fed allowed a ton of money to flow into residential real estate.
Even though there's still easy money from the Fed, lending standards have tightened since then, and builders and private equity seem to be effectively limiting supply to keep home prices high.
But this wouldn't have happened in the first case if the executives hadn't made this cartel. These are just second-order consequences of their actions - what might have happened over the course of two decades happened within 1 or 2. But this isn't the government's fault, this is a market imbalance caused directly by Google et al. acting in bad faith in the first place.
> So now house prices in Mountain View and Sunnyvale go from $800K -> $2.4M, and you must be a dual-tech-income family to afford a house.
Weird that this is a problem in Vancouver, Toronto, etc. The larger trend that you're ignoring is that global capital finds real estate in these areas to be good investments compared to their domestic options for storing value.
Instead of competing locally or domestically for real estate, people in the US, Canada, etc are competing with the richest people on the planet for a slice of the pie.
Yup. It should be illegal for non US residents to buy residential property in the US, especially in areas of high demand like the West Coast cities. Vancouver, BC implemented a tax which is somewhat helpful but clearly not enough. Land is a finite resource that's extremely valuable and selling it to foreigners for their vacation homes or investments is incredibly stupid. London is a place that's quickly learning this, although not doing anything about it. I wonder how bad it has to get until we change the laws. How many empty neighborhoods do we need to have before we reclaim the land for the people that actually live here? Probably a long time while the diversion is migrant workers crossing the Mexican border. It's amazing how stupid government and the people who support it can be.
> We were talking the other day about how the Bay Area's housing/homelessness crisis is a direct consequence of the collapse of the high-tech wage-fixing cartel.
Inflated housing costs are a worldwide phenomenon, you'll see a very similar story in Sydney, London, Tokyo and other places so I very much doubt the root cause is anything to do with the bay area. It might be worse there given the amount of money flowing in, but it's a much bigger problem.
The reason everyone at Apple and Google got a massive pay rise after 2010 is that Zuckerberg didn't join the cartel and Facebook turned on a firehose of money in SV. For employees of Apple and Google. Even of you never worked for Facebook, you owe Zuckerberg thanks for your raises.
how much do you pay for coca cola? If the price has gone up, it's probably not nearly as much as real estate has (probably more in line with what real inflation has been). And that's because real estate is a natural monopoly... luckily there's a solution, read Henry George: land value taxes.
Here's an email I sent to my city councilperson on 2017-12-01. It contains information that refutes your claim. I received no response:
Dear Aaron Peskin,
I live in Supervisorial District 3, at ... . You represent me and my neighbors in your position on the SF Board of Supervisors. Your work is very important. I have lived in SF for 6 years and have seen the housing market get more and more expensive while the city's businesses have grown. Economically, the city is prospering and adding many jobs which bring workers to the city every day. Unfortunately, the city has not added enough housing for these people. Here are the numbers:
- In 2011, SF jobs increased 2% (see [1] page 5) and housing increased 0.07% (see [6] page 4).
- In 2012, SF jobs increased 5% (see [2] page 5) and housing increased 0.4% (see [7] page 4).
- In 2013, SF jobs increased 5% (see [3] page 5) and housing increased 0.9% (see [8] page 4).
- In 2014, SF jobs increased 5% (see [4] page 5) and housing increased 1% (see [9] page 5).
- In 2015, SF jobs increased 5% (see [5] page 5) and housing increased 1% (see [10] page 5).
The 2016 reports should appear at [11] when they are available.
I took Econ 101 in college and learned about the Law of Supply and Demand. It's clear to me that SF's housing crisis is caused by demand growing much faster than supply. The city has enacted many policies and programs to boost the economy, creating more jobs. It has not done enough to make places for all of those workers to live. It's an imbalance of epic proportions.
Fixing this situation is the responsibility of the San Francisco Board of Supervisors. You are our elected member of the board. Please tell me what you are doing to increase the housing supply.
My wife works in philanthropy, and one of her jobs is investing in homeless shelters. We were talking the other day about how the Bay Area's housing/homelessness crisis is a direct consequence of the collapse of the high-tech wage-fixing cartel. Before 2010, the wage distribution from one of these huge companies was that founders and VCs would make billions, ~1000 early employees would end up with millions, and the rest of the employees live comfortable upper-middle-class lifestyles. The ~1000 employees who could cash out pre-IPO stock options would bid up prices in Hillsborough/Atherton/PacHeights/Woodside to ~$5M, but the rest of the Bay Area would be priced at what an ordinary professional could afford. After the cartel broke, the compensation structure changed so we have ~100K engineers each making ~$300-400K/year. That's enough to buy all the available housing inventory in the region. So now house prices in Mountain View and Sunnyvale go from $800K -> $2.4M, and you must be a dual-tech-income family to afford a house.
I say this not to imply that the cartel was a good thing (cartels are bad, and I'd much rather the solution be greater wage equality for everyone and building more housing so everyone can stay in the area), but to highlight the problem of unintended consequences. I've seen many people ask "Why don't companies hire remote workers at Silicon Valley wages?" and in the same breath say "Because I would never move to the third-world hellhole that the Bay Area has become", not realizing that if they did hire remote workers, the same thing would happen in their communities. Inflation is the flip side of higher wages; when everybody gets paid more, everything costs more.