Earlier quoted context omitted.
But the fact remains that the income advantage only remains an advantage so long as the costs remain low. The expense side of the equation can only rise so high before income becomes zero, or even a negative value. NYC and SV are able to thrive because housing is still cheap, but the market is quickly correcting that fact. At some point, if the trend continues indefinitely, one's income in these cities will leave the…
Trouble is you need a critical mass of social, technical, and cultural infrastructure. It's not like it doesn't happen. But unless a company with deep pockets is behind it, whatever one tries to plant there will die. Point is there are a lot of frictions. And big inequality is a big one.
1. Community A provides revenues of $30,000 per year, and expenses of $20,000 per year, with an income of $10,000 per year.
2. Community B provides revenues of $100,000 per year, and expenses of $50,000 per year, with an income of $50,000 per year.
Naturally Community B is going to be the more appealing option. But if housing costs (among others, but housing is the topic at hand) keep increasing in Community B, at some point you might find your expenses at $90,000 per year, leaving an income of $10,000 per year. Exactly the same as in Community A. At this point there is no income advantage in either location.
Assuming you live in Community B, until your income is reduced to that of Community A it is worthwhile for you to spend more and more of your revenues on housing to keep a good thing going. Even if your expenses rise to $80,000/year in order to stay in Community B, it is still a good deal. Your income is still double that of Community A.
But the market always seeks equilibrium. While corrections take time, eventually your Community B income will have to fall to the same level as Community A to eliminate the income advantage. As we discussed earlier, as long as one place has an advantage, people will move there and compete for resources (i.e. drive up costs) in the process until the advantage no longer exists.
And this is why certain markets are seeing incredible housing price growth. The market is correcting such that your your six figure developer salary in San Francisco provides the same income as working at McDonalds in Detroit.