When I bought, I noticed that every 10mins closer (rush hour driving) to Google was worth US$100k, and every point on the school rating was worth another US$100k. This led to an interesting gradient between downtown San Jose (bad schools) and Mountain View (good schools/close to Google).
The same thing applied to Cupertino/Apple, with Willow Glen having better schools but a longer commute.
We drew a circle on the map showing the longest distance I was willing to commute (on a bike), and bought on the circle.
Malicious startup idea: a company whose business model is driving rent-seeking real estate speculators into financial ruin. The company would buy residential real estate in a low cost of living area, followed by setting up offices there and paying its employees a high salary to do absolutely nothing. When rent-seekers inevitably drive up housing prices to as high as wages will tolerate, the company sells its real estate holdings in that ___location and moves somewhere else.
Non-malicious startup idea: What if you bought houses in bad school area, created a great private/charter school in that area and sold your houses at much higher price? From OP's calculation, a great school may cause at least $200K price increase per house and depending on capacity of the school you need to build, I think this can turn out to be pretty good business.
> What if you bought houses in bad school area, created a great private/charter school in that area and sold your houses at much higher price?
It's not easy to create a good school. Certainly, simply throwing money at the problem doesn't work, as shown by an example of US public schools. The most certain way to achieve it is to heavily preselect the attending children, but that presupposes the existence of such quality base in the area around the school. The problem is that if it does, then their parents are usually already rich themselves, and so the house prices are already high.
Are these assumptions, that throwing money at the problem characterizes US public school, and that quality children usually have rich parents, anything like justified?
They must be. Public schools are underfunded. Also, who measures children by “quality”? Jeez. This part of SV culture I would like to unsubscribe from.
Compared to what? Spending per pupil in K-12 are up >2x compared to 40 years ago, adjusted for inflation. Worldwide, they are second only to Norway and Switzerland. Moreover, the poorer and worse performing schools typically enjoy higher spending per capita than richer schools. See e.g. [1]. For a specific example, look at the public schools in DC, which have absolutely atrocious educational outcomes, while enjoying double of the national per-student spending (which is already very high by itself). DC is literally spending 4x as much per student than US was on average in 1970s (again, inflation adjusted), and having worse educational outcomes than US in 1970s on average.
> Also, who measures children by “quality”?
Hardly anyone, which is why you have uninformed opinions about how increasing funding will improve outcomes. We already did it. It didn't work one bit[2].
Also what you linked (1) does not support your argument. "The U.S. public school system is characterized by large funding differences across districts, but what about differences in school spending within districts?" Sure, within a school district it's a different story, but people are very careful when drawing those borders based on specific agenda's.
Per student Instruction spending: Arizona $4,077 vs New York $15,746.
Per person income Arizona $25,680 New York $40,272.
> Per student Instruction spending: Arizona $4,077 vs New York $15,746
That's funny, because New York and Arizona perform about the same in the NAEP assessment. Clearly, New York has a lot to learn from Arizona, if it can achieve the same results with quarter of the NY's spending.
Even if they cannot improve their test scores, imagine how much the situation of students in poor families would improve if the $12k saved per student was simply given back to their families. Think of how many kids could be pulled out of poverty if their parents got extra $1000 per month per kid.
> Looking at Graduation rates Arizona is well behind New York.
Arizona is at 79.5%, vs. 80.5% in New York. I'd hardly call it "well behind". Moreover, the poor students have higher graduation rates in Arizona than in New York. And, moreover, the graduation rates don't mean much, as shown by recent DC graduation rate scandal.
> Looking at ACT and SAT scores by state Arizona is well behind when you adjust for participation and graduation rates.
What's the source of this data? Does it adjust for private vs. public school?
> New York is doing very well economically specifically because they are spending on education. Resulting in vastly fewer poor families.
New York does very well economically because of New York City, which didn't become the global economic powerhouse because of its high education spending. New York City public schools, with a handful exceptions, are well known to be quite bad, by the way.
> Now, you can argue New York is not getting value for money, but they are getting better educated kids.
I see no reason to believe that New York public school children are any better educated than Arizona.
> And, moreover, the graduation rates don't mean much, as shown by recent DC graduation rate scandal.
Did you miss it?
It is you who even brought up the graduation rates in the first place. If you believe that the numbers are not to be trusted, why did you even bring it up?
No single number is that meaningful on it’s own. But when a system has both lower standards and lower graduation rates that’s a clear sign of a problem.
Similarly, if your measuring graduates you need to ensure your measuring similar populations and one system is not simply dumping problems into a separate non counted category.
Doesn't the US have some sort of standard curriculum which defines what you have to do in order to graduate? Like you must have passing grades in at least N subjects.
> That's funny, because New York and Arizona perform about the same in the NAEP assessment. Clearly, New York has a lot to learn from Arizona, if it can achieve the same results with quarter of the NY's spending.
Given how much of school costs are labor costs, the main thing Arizona is probably doing “right” to produce those efficiencies is hiring people who live in Arizona.
It's not likely that New York can really learn much from that.
Public schools are not underfunded. The inflation adjusted per student k12 spend in the us has gone up over the last 30 years.
It seems like school teachers are dramatically underpaid (a matter of opinion but I feel it's probably true in the median), but not the system as a whole.
The public teachers don't have very high annual incomes, especially at the beginning of their careers. However, their wage is really good on a per-hour basis. A median teacher already makes more on their own than the median US household, while working considerably less than 2080 hours in a year. Additionally, the teachers typically enjoy really good pension benefits, which significantly improves their total compensation, even though it doesn't actually show up in the wage statistics.
It depends on who you ask. If you ask teachers, they'll tell you that they work 16 hours work days all year long, but try scheduling a teacher-parent meeting after work hours.
Its almost as if they are also humans who need to feed and enjoy themselves outside their job.
I know a few american teachers, grade thru hs. They report wages and supplies are a bit better off than in previous years, but that cricculum is so perscribed that they feel little leeway to actually 'teach'. They find themselves optimising for test taking and hate themselves a little bit for it. They are constantly under fire from other teachers with competing agendas, and beset by often abusive, sometimes nessarry, unions. It is a bad system that has evolved and the teachers are sad pawns in it. But there is still live to live, love to explore and things to strive for outside your job. Teachers have a heavy feeling of seeing their enforced ineffectiveness slowly degrade their community.
But screw teachers for not having extra time, amirite?
Wait, are you saying that being resistant to schedule work which both is recognized as appropriate for official working hours by the employer and which can be effectively performed during that time given the structure of the working day somehow contradicts the claim of necessary work that either cannot effectively be done during the official working day or is not recognized as necessary by the employer that must, therefore, be done outside that time?
Because from where I sit those don't conflict at all.
it really varies, its not fair to say that all schools are well or poorly funded. in california, it is dependent on local taxes for example. so palo alto has incredible schools, and LA and Oakland have some of the worst in the country
That's not true at all. You should look up the top spending per capita (large)[0] public school districts and you will find NYPS, LAUSD, CPS, and Baltimore school districts among them.
[0] there are lots of high-spending small outliers serving areas with total (adult+child) populations in the < 100k range
Palo Alto spends only 10% more than Oakland per student, which itself spends more than both national and state average. If Oakland schools are worst in the country, the funding has minor, if any, impact on it.
The difference is "PiE" Partners in education, which is a non-profit voluntary parent-led organization which supports "All" the extracurricular activities plus for in-class aides for all classes.
For most of california it is not at all dependent on local taxes. Local taxes only significantly affect "Basic Aid" (i.e. wealthy) school districts, 40% of which are in the Bay Area.
For the rest of the state, the funding is nearly identical on a per-student basis.
Regarding the second part, yes, the fact that academic achievement is highly influenced by socioeconomic status is well supported by research; a big part of the whole correlation is that higher socioeconomic status means better schools, but there's still a strong effect within the same school. There's a bunch of studies that try to estimate the nature/nurture split, but in any case higher socioeconomic status correlates positively with pretty much everything schooling-wise.
What if poor children tend to have distracting home lives, stressful situations, parents who aren't educated enough to help tutor, poorer diets, higher rates of disease and fewer positive peer and authority figure examples?
If these are what makes poor children perform poor at school, then the strategy of making good schools to boost house prices is not viable -- we simply have no idea how to make kids facing the problems described above achieve good scores, because if we did, we'd already be doing this. Moreover, this wouldn't attract wealthy buyers, because their children don't have these problems in the first place, so they won't get any improvement.
The point here is that we have no idea how to make a school good, other than by kicking out bad students (whatever the reasons for them being bad might be) and getting good ones. If you knew a way to take a random bad performing school in the country, and bring its students educational outcomes to above national average, you'd make lots of money contracting out consulting to local government.
> The point here is that we have no idea how to make a school good, other than by kicking out bad students
I would disagree with any metric claiming to measure school quality that is not constant when the demographics of the school change. If our metrics simply gauge the socioeconomic status of a school's population, we need better metrics. We also need to develop interventions that overcome the educational costs of poverty, perhaps, dare I say, by eliminating--or at least attenuating--poverty.
Who are you arguing with? You don't like poverty? Neither does anyone else.
And if the metrics don't appeal to your preconceived notion of how the metrics should work, you want to change the metrics? You want metrics to not notice changes in demographics?
> If you knew a way to take a random bad performing school in the country, and bring its students educational outcomes to above national average, you'd make lots of money contracting out consulting to local government.
Converting them to boarding schools and essentially cut off contact with the rest of the world may work. It would also be both really expensive and creepy, reminiscent of the times when native American children were forced to attend English-only schools away from their families.
It's perhaps worth to consider what does "quality children" mean in the context of a "good school" - and it could certainly be argued that one of the major criteria for parents moving in and choosing a school is to get their kids into a school where the other kids are of a comparable or higher socioeconomic status. The other things about the school are fixable by heavily involved parents, but you can't (easily) alter the peers which your kid has in school, only pick a school with "good" peers. Other things being equal, having your kid in a school with (other) poor kids puts him/her at a disadvantage, all kinds of poverty-correlated problems (e.g. parental neglect, parental drug abuse, nutrition problems, crime and imprisonment) drag down not only affected kids but also their classmates.
> Brown often works from 5 a.m. to 4 p.m. at her school in Versailles, Ky., then goes to a second job manning the metal detectors and wrangling rowdy guests at Lexington’s Rupp Arena to supplement her $55,000 annual salary. With her husband, she also runs a historical tour company for extra money.
So, basically, in her teacher job, she already makes more than 60% of Versailles, KY households. If her husband makes anywhere close to what she does, their household makes more than 85% of households in Versailles, KY, and that's not even counting her moonlighting.
Maybe they have some special needs, like e.g. disabled children, that make them need six figures income, then certainly I'm sympathetic to their plight, but if the argument here is that a household in Versailles, KY needs a six figure income just to survive, then well, I'm stunned.
The argument here is the teachers aren't well-paid in the US, especially given the importance of their profession and the level of education a teacher typically gets.
I can't speak for KY, but if you want to go into specific numbers, let's start here:
>In 2016, for instance, the average teacher’s starting salary was $38,617
Make that $45K in California[1].
In San Jose, where I currently live, median elementary school teacher salary is about $50K[2].
With this kind of salary, the median teacher will not be able to rent a one-bedroom apartment in decent San Jose, which typically go for well over $2K/month (about $2500 for 1B)[3], since landlords usually want to see monthly incomes of 3X rent (source: I'm renting).
That's barely double the minimum wage ($12/hr in SJ) for a median teacher salary.
Again: this means half the elementary school teachers in San Jose make under 2X minimum wage and most literally can't afford to rent a 1B apartment on their own.
That's before you add in student loans (education isn't free!), car payment/maintenance/insurance (we don't have a usable public transportation system here), etc - and that's assuming no kids.
You can always find an example of a teacher that's well paid, but there's a reason why the teachers were protesting in several states - and the reason isn't that they have too much money thrown at them.
If the teachers make $24/hr, that means they're working 11.25 hours per day, assuming a 185 day work year. Since a school day is just around 6.5 hours, that seems like a lot of after hours work.
If we assume they make all their salary in 8 hours/day, that's more than $34/hour. In a non-school work year that translates to about $70,000/year.
An annual salary of $50,000 translates to an annual salary of $50,000. It's fun to play with numbers and try to figure out hourly equivalents, but the pay is what it is. We can have all sorts of arguments about how much time teachers "really" work, how hard the job is, what fair compensation is, and so on, but they're different questions than "is an average Silicon Valley teacher's salary sufficient to cover average housing costs in Silicon Valley in 2018," which seemed to be the original question. The answer is: "no."
(For the record, the average salary for a public school teacher in Santa Clara County is $68K as of July 2018. The average rent for an apartment in Santa Clara County as of September 2018 is $2730, or 48% of that income; for a 1BR only, it's $2471, or 44%, still well over the 2.5x rent-to-income guideline that many rental companies use as a minimum. The median home price in Santa Clara County as of July 2018 is $1.3M, so I'm gonna say we don't really need to look at mortgages, okay? Okay.)
>If the teachers make $24/hr, that means they're working 11.25 hours per day, assuming a 185 day work year.
My apologies, but you have no idea how much work a teacher actually does. A lot of it is indeed done after hours, and yes, 11-hour work day is not atypical. There's lesson planning, endless grading, paperwork, and that's just to start.
But, as the other commenter here said - it all doesn't matter. $50K is $50K, and after all the juggling, a teacher in SV can't even rent an apartment in SV.
All that is to say that the US is really not solving its education problems by throwing money at it, as suggested by a parent comment, when a full-time teacher can't even rent an apartment with their salary in one of the richest and biggest metro areas.
(1) good/bad school area refers specifically to the ratings of the public elementary, middle, and highs school to which persons living at an address are assigned by geography (it's a measure of what you are entitled to as a result of living at a given address, not what happens to be nearby otherwise); starting a private school (whether a regular private school or a privately owned charter school) has no direct effect on that, regardless of its ratings.
(2) There's pretty strong evidence that school ratings mostly are a measure of the students assigned, so if you want to influence ratings of the local schools to manipulate real estate prices, you don't establish a new private school and try to make it good, you make a new private school and selectively admit low-performing students from the target area.
> From OP's calculation, a great school may cause at least $200K price increase per house
Say it with me: Correlation does not imply causation!
Correlation does not imply causation!
Correlation does not imply causation!
Correlation does not imply causation!
(And schools in the U.S. are funded largely by local property taxes. Therefore, the arrow of causation might very well go the opposite direction here: the places where homes are sold at higher prices are assessed at correspondingly higher taxes, and therefore those school districts get more money, and thus perhaps -- perhaps! Correlation does not imply causation! -- those more heavily funded schools are regarded as "better".)
How do you account for wild differences between schools in the same school district? Despite sharing a tax base, you see a sharp increase of the median house sale price across school boundaries.
Aside from differences in capital investments, generally the operational funding is allocated on a per-pupil basis.
I was wondering if you could skip the middle bit and just do it as a straight up fraud by pretending that the place had business, then I remembered how Florida happened.
A better startup idea would be some way for people in a neighborhood to act collectively to improve the local school.
How can someone who isn't a parent improve the quality of their local school? A point is worth _a lot_ around here.
I know buyers are thinking to themselves:
"I can either send my children to private school, or I can buy this house and send them to public school. Either I spend $35k/yr per child in fees, or I can spend $80k/yr and buy in a good district."
At that point the $80k is a good buy - they're thinking they can get it back.
I look at my school (poorly scored school) and ask "how can I convince them to send that private school funding money my way?" Typically I would vote up property taxes but I don't have that lever in California.
Extra money does not help school quality much. School quality, I think (someone on the internet who lives with a teacher), is determined: first the qualities of the students at the school, second the quality of the student's parents, third the quality of the teachers and school admin, fourth the quality of the school's infrastructure and equipment. You can greatly influence the last with money and the third somewhat with higher salaries, but not so much the first or the second.
Say you took any poorly scored school and decided to create two schools from the student body. Same funding per child. Children whose parents come to a signup night for the new school get to go to the new school. The rest stay in the old school. The academic results from these two schools will be very different, just by this simple sorting. Money and better teachers help, but so far applying them from the outside doesn't seem to move the needle much.
That's a horrible thought experiment. and probably correct
So how about this as a hypothesis- spend the money on improving parental engagement. Weekly training events, much better planned homework (xeroxd sheets handed out is not the same as a guided syllabus for the parents to follow)
But what if those parents don't want to be engaged with. A lot of children who would be "left behind" in the old school would have been from a worse social-economic background which would mean the parents just won't have time for the school events. Or they might just not care about the kids.
Very few parents are sociopaths - so let's go with 99.9% of parents care about their children and their future - but most of us don't have credible people standing in front of us geeing is on to take the right actions at the right time
Have "parent trainers" for a school and i expect a massive increase in engagement - and pupil outcomes.
This of course comes at a cost.
And where parents are working 3 jobs to get buy, then yes, there is another extra cost to society - which is to ask why have we arranged society so some people are in that situation ? cf tax regieme, welfare state etc etc
> Have "parent trainers" for a school and i expect a massive increase in engagement - and pupil outcomes.
I don't. For three reasons:
(1) the needed training is probably deep, not shallow, and needs years of lead time.
(2) most parents aren't sociopaths, sure, but that doesn't mean they accept an offered external authority as more knowledgeable than themselves on rearing their children, even if they actually were.
(3) #1 is only a “probably” because it's not entirely clear what the needed training is; we know parental wealth and educational attainment makes a big difference, but we don't know on a more detailed level why, and there are conflicting explanations. Having trainers may not help much of we don't know what it is that they should be training.
Or maybe we should collectively wonder whether we're tracking the good metrics and whether GreatSchools is really tracking something useful. Not to mention they're funded by the CEO of Walmart :-/
I'd imagine that something like this would need to be done on enormous scale to make such a dent. How many engineers would a company need to hire? 1000? 5000? 100,000?
Ben Shneiderman (a user interface researcher) developed and experimentally evaluated the "Dynamic Home Finder" in 1992, using "Dynamic Queries" to quickly and interactively visualize and explore different combinations of filters on a real-estate map, which inspired me to implement the "Frob-O-Matic Dynamic Zone Filter" in SimCity:
>He and Christopher Williamson developed and empirically evaluated dynamic query sliders in the ingenious Dynamic Home Finder [4], which applies direct manipulation and infovis techniques to dynamic real time visual real-estate database queries. That inspired me to implement a similar real time information visualization technique in SimCity [5].
>Abstract: We designed, implemented, and evaluated a new concept for visualizing and searching databases utilizing direct manipulation called dynamic queries. Dynamic queries allow users to formulate queries by adjusting graphical widgets, such as sliders, and see the results immediately. By providing a graphical visualization of the database and search results, users can find trends and exceptions easily. User testing was done with eighteen undergraduate students who performed significantly faster using a dynamic queries interface compared to both a natural language system and paper printouts. The interfaces were used to explore a real-estate database and find homes meeting specific search criteria.
They are, and California voters passed a ballot initiative limiting the rate property taxes can increase. End result: nominal tax rate above of 1 percent, effective rate at around half that.
Not exactly. Thanks to Prop 13 and Serrano v. Priest most school funding is from the state in California, and allocated pretty equally across schools. Parental donations are what give some areas better resources.
"Mountain View (good schools/close to Google)" Did you mean to say Palo Alto. Mountain View public school system is like the millenials call it Trash. Mountain View which is home to 2 out of 5 Big tech (Google and Microsoft) has one of the worst Public school systems here in the bay area. Proves there is zilch direct correlation between High paying jobs and School district performance. In fact, Dublin/Pleasanton where the average wages are 20-30% less than in the Silicon Valley proper, public schools are awesome. Cupertino is an outlier IMHO.
There is one mediocre elementary school in Mountain View that serves a poorer, hispanic area. Other than that is pretty good. Better than most of California, not as good as districts with high Asian populations in the bay area like Dublin or Cupertino.
We bought our first home in Mountain View last year after renting for over eight years. All our schools are great. We're part of the Los Altos School District. Schools were a big part of where we chose to buy.
At least the don't still have all those Doberman Pinchers running around and pooping in 444 Castro Street (aka "Dog City") any more. How times have changed.
>For 10 years after it was built,
the big office building on Castro
Street was empty, prompting
owners to worry that it would
become targeted by thieves or
squatters. Their solution was to
let a pack of Doberman pinchers
run loose on the building’s
ground floor.
>The dogs barked from the lobby
at anyone walking down Castro
Street, leading to nicknames for
the structure like “Dog City” and
“White Elephant.” Some called
it the largest dog kennel in the
world.
>Meanwhile, the dogs had
nowhere else to go, and so
they soiled the building, leaving
an increasingly horrible mess.
>According to recently retired
finance director Bob Locke, city
officials joked that it took years
to get rid of the smell.
(The article has an archive photo that shows how the 12 stories were built from top to bottom down! And former mayor Bill Jelavich reminiscing about how the building was actually part of his plan to revitalize the downtown.)
>“I never dreamed it would
change the way it did,” Jelavich
said of the city’s downtown.
Author has a great grasp of the market, and this simulation is pretty cool.
Another way to look at it is the house-price-to-income ratio, San Jose metro is the highest in the nation for individuals, #2 for households. [1]
Even better IMHO is price-to-rent ratio, which is the rental price of a home compared to the purchase ($360k home rented at $36k/yr is 10x). SV runs from 35x in SJ to 45x in SF (highest in the nation). Home values can't rise much above this unless income rises. [2]
A Price-to-Rent ratio of 45 is indeed crazy. Implied total return only slightly above 2% with quite some downside risks AND running costs + depreciation.
Rents are also quite high and it would still take 45+ years to have it paid off!
Any reasonable person would want to rent in such a situation.
1. People value owning a home irrationally, the price is disconnected from fundamentals
2. People are pricing in future growth. With interest rates being low, this growth can be fairly long-term. The growth is primarily in future rent increases, but also potential interest rate decreases or irrational future growth (as in point 1).
Now, for point 2, we can actually calculate implied future growth, and then try to decide whether it is rational or not - e.g. given the market future interest rate expectations.
It would also be interesting to know who owns these houses. Did they buy them by really stretching themselves, and any downturn in the area would result in loads of forced sells, temporarily collapsing the market? Or are the owners in no danger of having to sell?
A ton of good and interesting bits in here, but the real payoff I'm pasting below as I fear others might not make it to the end of the article:
_________________________________
In turn, what this means is that the NIMBYs are not all crazy. If you try to improve your home, the neighbourhood, or the region, you will not improve the property values, so don't waste your money (or municipal funds); the property values are already at maximum. But if you build more housing, you run the risk of putting DSR below 1.0 and sending property values into free fall, as they return to "normal" "healthy" market conditions.
This might also be useful knowledge to the currently non-voting renters who one day hope to enter the market. It's about half-and-half own vs rent for the Bay Area as a whole, but SF and Oakland are majority renter. Vote now to increase housing stock, and you might soon be able to buy in at a reasonable price!
Great article, this you articulate perfectly what has been on my mind lately “It means raising engineer salary to match the higher cost of living ("cost of living adjustment") is pointless: it translates directly to higher housing prices (X goes up for everyone, so R*X goes up proportionally), which eats the benefit.”
It's not pointless from the perspective of any given engineer. If a given engineer is willing to accept a lower relative quality of life in the Bay Area, the absolute amount they save as a result of that decision is larger at a larger absolute salary. This is relevant as long as the probability of living outside the Bay Area in the future is greater than zero.
Commute for hours every day and live in crappy shared housing for a couple decades so that eventually you can walk away from all your friends and colleagues and start over somewhere worse.
Seems like a pretty obtuse way of obtaining a Midwestern house. You could also just mortgage one, like everyone else does, while working any white-collar Midwestern job.
You think all or even most of your friends and colleagues are still going to live in the Bay Area in a few decades? :( Sorry, that ain't gonna happen. And it doesn't take decades to save up enough money to be financially independent elsewhere if you're getting paid in the Bay.
This might be a problem for one or two of the top areas, but there are not enough Bay Area emigres to materially move the needle in the vast majority of non-Bay Area localities.
Try "tens to twenties of 'top areas'". Just look at the housing market in any other city in the US that's started to build a tech hub. Austin, TX in particular is a good example where the average cost of a decent house has basically doubled in the last 10 years.
This is what has happened in Austin and Portland, just to name two. As another commenter said it isn’t enough to affect every market but I think it affects many markets, and there is a domino effect as people cash out of those second level cities and move into third level, etc.
Slightly off topic, but this has been my fear with the push for UBI, it feels like rents/costs will just go up as they did with gov't backed student loans..
Related: Hypothesis: The most effective way to increase (effective) minimum wage (and quality of life for anyone not in the top (small) n%) is to increase the SUPPLY and quality of all basic quality of life items.
I'd label this as less a "hypothesis" than a "fact obvious from the last couple centuries of economic development". Optimizing commodities is something capitalism is pretty good at.
This is exactly what will happen with UBI. Throwing more money at a problem through consumers only works when it results in an equal supply increase (such as food stamps and food production).
Except that UBI is/was supported by realllly savvy economists. Like Milton Friedman.
A similar argument could be made about public spending on education, that it only creates inflation. But of course education is a great way to increase productivity. Similar effects would probably follow from universal healthcare and a UBI: namely healthy, financially secure people can do things that have short-term costs but long-term benefits, like starting a new business, or doing a low-paid internship, learning new skills, and so on. Also, fewer sick-hours leads directly to increased productivity.
> A similar argument could be made about public spending on education, that it only creates inflation. But of course education is a great way to increase productivity
Uh yeah, but that doesn't make it a good thing. If the expense of education puts you into a debt hole that is so deep that it's impossible to make up for it with increased productivity, that is a net negative.
And what does this have to do with housing? Increased housing costs is like the exact opposite of increased productivity. Limiting supply of housing is a rent-seeking behavior.
The dream is UBI might slightly increase the cost of some things but it will greatly increase the buying power of those at the bottom. It won't help you afford a city apartment but you can now afford a place to live somewhere.
This isn't proof or anything, I just don't think the bay area disproves anything.
If I’m a rational landlord and the market is efficient: I figure out what percent of income is typically spent on rent (P). If people suddenly get $N more, I immediately raise rent by N x P because the market will now bear exactly that much more. Assume all landlords are as rational and we are back where we started.
UBI is slightly different because UBI would not be enough to live in an expensive city. So if you plan on living purely on UBI then you would need to move to the outer city or rural areas where COL is low.
I'd imagine that with UBI, the incentive to stay in a low CoL area increases and for a subset of the population, they will seek out a low CoL area. Then there will be the subset of the population that takes their UBI and goes to an expensive city for the "opportunities" and pay the higher rents for said opportunity. If it doesn't work out, they can take their UBI and go back to a low CoL area. Of course this mobility gets harder once one has a family.
I am staunchly opposed to Universal Basic Income because inflation will simply rise to meet the UBI. But Universal Basic Assets is an interesting concept.
In a similar comment thread a couple months ago, someone brought up the book Progress and Poverty (https://en.wikipedia.org/wiki/Progress_and_Poverty), which described this effect nearly 140 years ago. I could have used this wisdom when I was just starting out in my financial career.
Last time I checked, rents weren't that bad, even in Mountain View. Now, rents aren't cheap, but compared to what you'll pay in, say, Los Angeles or San Diego, the rents are not insane. I'm trying to relocate to the valley and I'm looking at about $1k(a bit less even) in extra rent every month for a comparable apartment.
Now if I wanted to buy a house... yeah, the valley sucks. But so does owning a house and I have no interest in that anymore.
Your quoted rents are kind of -- surprising to me. I'm paying $3500 a month for a 2BR/2BA apartment in Santa Clara (a nice one, to be fair: 1100 square feet, W/D in unit, blah blah blah), and a quick look at San Diego apartment prices on Rent.com suggests I could very easily find a comparable apartment for hundreds less. My apartment management company shows a 1300-square foot apartment in San Diego's East Village with better amenities than my current place for just over $3100 a month.
You could pay a lot less if you didn't live downtown. I live in north county, where most of the tech jobs are. I'm about 5 minutes from work. I'm paying $2300 with water and a monthly dog fee. That's for a 2 br with W/D in unit.
I think that honestly depends on what "normal" place you're looking in. Tampa, Dallas, Orlando, Minneapolis -- they're all above the $1K average apartment rental price as of right now, according to RentCafe's market trends.
Well except its not as simple as that, is it.
There are a lot of second and third tier Tech companies in SV (not considering startups even) that can't raise salaries as quickly -- or at all. Also then there is the question of simultaneity, if I'm the first engineer to get a 20k raise then I will be ahead of everyone else, while everyone else catches up.
I think the gamble is to save up enough to buy in somewhere and then hold on for the ride. The trick is getting in before you get priced out and being able to survive a crash.
Yeah I'm surprised to see how many companies in the valley still pay low wages compared to the FANGs. I can make anywhere from $120k-300k+ depending on the company.
Companies absolutely do this, it's usually just not explicitly stated. When cost of living goes up the minimum compensation a given person is willing to accept goes up so salary ranges go up. If you mean companies don't adjust for CoL for current employees well... yeah, wages are sticky.
I read this to mean that Silicon Valley SWE's are suppressing the ceiling on all SWE salaries; this corresponds to my feel that SWE could be making quite a bit more.
Simulation is nonanalytical way to model complex phenomena and try to understand dynamics of it. Just like purely analytic mathiness, the main benefit is that others can point errors and omissions. Peter Norvig does it too: https://github.com/norvig/pytudes/blob/master/ipynb/Economic...
The only working solution to housing is building more densee cities with more housing. Productivity of workers and companies increases as the result of various agglomeration effects.
So does social housing make the situation better or worse?
Looking at London, for example. There are surprisingly few nice areas in London to live in with a family, in close proximity to the City, even if you had loads and loads of money. That has always seemed very odd to me. As a result, the few reasonably nice houses that you do find, have prices that are "maxed-out" - that is, if you are in the "high-earning class" - e.g. working in finance in London - and buy them, all your "excess earnings" are sucked into mortgage or rent, and you are left no better off than if you were in a median job, except now you live in an ok neighbourhood close to work.
If you had no planning laws etc. and it was easy for property developers to develop how they like, you would think that the area around where the highest paying jobs are would be more uniformly nice, developed in such a way that the people working in those jobs would want to settle there. So the supply of houses for those workers would increase. At the same time, low-income workers would likely be pushed further out, with some finding that the extra commute makes working in the city centre not worth it. Thus the wages for the low-income workers will probably go up as the supply of labour goes down.
It seems like the overall utility would go up - London would become a nicer place to live in, crime rates would drop, etc.
Unfortunately for London property has become a massive asset. If you look at who owns most of the houses you'll see that it is foreign buyers, the wealthy with multiple houses, and extreme landlordism. This is artificially raising the price, even though there are plenty of empty lots sitting around, forcing crowd out without actually creating any better property.
Socialized/affordable housing might help, but typically once the market is so distorted not many people can afford to live there and thus even if their rent is cheap they're going to leave. This property is then bought by the wealthy and traded for an asset, repeating the cycle.
But is the price really disconnected from rents on comparable properties?
The way I think about it, is that if buying a house can yield you 2-3% - either through expected house price growth or through rental income or both - someone will be buying it at that price, because it makes economic sense in a low interest rate environment (i.e. you won't find any other assets with similar risk that will give you a higher yield). Who ends up being the buyer is not particularly relevant - as long as the yield is there, somebody will be buying at that price.
The question then is,
1. Are rents too high? Unlikely, rents are very much supply/demand driven.
2. Are yields too low than what is justified? Possibly. Rental yields in central London seem to be around 3.5%, which seems quite low if you take into account the costs and the risks.
3. Are investors pricing in too much price growth? Possibly - related to point 2 above.
But it doesn't seem like current buyers are paying completely irrational prices for the houses. So it does not seem like we are in a bubble. Of course, if interest rates go up, we will see housing drop, and as expectations of future price growth are reduced because of that, we should see a bigger decrease in house prices than is warranted by interest rate increase alone. Add to that the potential of some people not being able to pay their mortgage at higher interest and being forced to sell, and the prices should dip even more than "intrinsic value". If this effect propagates to the wider economy, people might lose their jobs, forcing more people to sell, resulting in a full-blown liquidity event where it becomes a buyers' market for a short while.
Now, whether interest rates will go up significantly and whether once there are signs of such a liquidity event they will stay high is anyone's guess.
Is the talent pool more valuable there than elsewhere in the US or elsewhere in the world? Even if you allow for the effect of having drawn talent there over decades, is it that much more valuable?
If not, it seems like corporations are making a mistake by investing there. If the government can't be convinced to change the zoning rules, then companies should take some attrition and expand elsewhere.
There's a certain critical mass to it. We moved out to SF for five years while I worked at YouTube, then back to Atlanta to be close to family (and afford a house).
There are two or three awesome places to work in Atlanta. In SF I knew I could get out of bed, trip over my shoelaces, and accidentally land on six fantastic places to work before breakfast…
btw, if you're in Atlanta, or interested, you should come have (free) lunch with us sometime at Square Atlanta.
If you're experienced, and interested in Go+Java infrastructure/tooling work, hit me up: I'm trying to help get an Atlanta PlatEng (“Platform Engineering”) presence off the ground and might be hiring soon…
This is already being questioned and these days a lot of companies are moving out.
However as an engineering manager who has done hiring in multiple locations around the US I will say the sheer size of the talent pool does matter. It’s like the Napoleon quote, quantity has a quality all its own.
I think simulation's scientific utility is misunderstood. A model with honest parameters and predictive ability can be used to hypothesize effectively about changes in policy or or the effects of external factors.
so basically we need to reduce zoning laws and kill the market which has always been in my mind. No one wants to say it but the truth is a healthy market means housing isnt worth that much which means its not a good investment (which it shouldnt be, it should be a place to live)
I loved the reference to the Zen and the art of Motorcycle Maintenance. Like you, A colleague of mine saw parallels in the book to data science (He wrote a series of talks about them. Here's a video with me explaining some of them https://youtu.be/iYRtVwqxjzM).
Another "solution" - one that requires no action from homeowners - is to fix the demand side of things. Engineers without family could park a van nearby and (optionally) commute in and out over the weekend to a nice area further out. For the cost difference I'd be willing to put up with a pretty significant amount of hassle like that.
My manager's manager kinda does this. She flies her airplane back and forth between Yosemite area and the Palo Alto airport everyday. She loves flying and the numbers apparently penciled out for her to be able to afford to buy a house in Yosemite with access to a private landing strip, and buy the plane, fuel, and maintenance for cheaper than she could buy a house in the bay.
I think flight time is around 50 minutes. Depending on what time I leave the office she sometimes gets to her house up there before I get to mine in Cupertino.
Funny startup idea: buy a bunch of real estate in those areas, then rent out capsule homes for a hundred bucks a month. Stuff them into these overpriced homes and take a bunch of cash-strapped renters away from those that are pushing the rent up.
You’ll lose money on upkeep and taxes probably, but its still a fun idea.
The same thing applied to Cupertino/Apple, with Willow Glen having better schools but a longer commute.
We drew a circle on the map showing the longest distance I was willing to commute (on a bike), and bought on the circle.