101–110 of 165 posts
It is a shame that there are no national supply-siders in congress who are willing to to 'encourage' coastal building.
Earlier quoted context omitted.
Most of the renters I know in the bay area rent a house with 3-4 roommates and pay reasonable rent with that split ($1400/month -> $1900/month each for a room in the house). Then saving as much as possible and hoping stock or RSUs will get you the rest of the way there to buying something (or buying a 1 or 2 bedroom for ~one million once you find an SO and working from there).
"reasonable" is relative to what you get, and nothing in that area is reasonable. In no way is $1400 to $1900 per month reasonable for just a room. For that price you ought to get a 1500 to 2200 sq ft detached 3-bedroom or 4-bedroom house on a quarter acre lot.
If you're able to get total comp from 200k -> 400k and save 50% of that or more per year into a total market index fund for ten years that's pretty good, especially if you start at 21 or 22 out of school.
The economics make sense even when you ignore the other benefits (great environment for cycling, running, general outdoor activities - huge amount of smart people to learn from and work with, huge amount of companies hiring, startup opportunity, high quality food, etc.)
It's still a shame though because if Prop 13 was phased out and housing was built we could have all of this without having to waste huge amounts of money on overpriced, run down, tiny little houses, but that's Moloch [0] for you and local NIMBYs operating in their own self-interest.
[0]: https://slatestarcodex.com/2014/07/30/meditations-on-moloch/
Earlier quoted context omitted.
yes, but in many desirable areas a significant portion of buyers are cash only buyers whose monthly payment is $0 (other than property taxes).
Intuitively, I would say the number all cash buyers is a pretty small number in every market. Especially in a low interest rate environment. Most people with the means to pay cash for a property would likely be savvy enough to understand that that they would be better off getting a jumbo mortgage at 3.25% and deploying that capital at a higher rate elsewhere.
I used to make about $600K/yr salary in SF and couldn't imagine affording a home there that I'd feel comfortable with a 30-year mortgage payment on.
I currently make 600K / year in SFBA and don't feel comfortable buying a home (2000+ sqft in a good neighborhood is 2.5M) We rent for $7K / month but our mortgage would be 14K a month if we bought. I am not sure how much money I would need to make to do this. My worry is that I lived through 2 recessions and we'd almost certainly lose everything if I lost my job and couldn't afford the mortgage.
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All the blame? No. Most of the blame? Probably. The same that happened to your parents happened to landowners of huge properties. They still pay peanuts for property tax 40 years later. In the end - it helped people who got there first and then screwed everyone else over. It helped rent seekers more than anything.
That is a flaw of Prop 13, but I don't see how it drives home prices up? Wouldn't it motivate devleopers to build properties to rent out because of a long term margin improvement in the profit? (because the property tax rises are constrained below most inflation).
That (generally) increases your tax assessed value. Whenever you renovate or build out - they will factor that in and tax you more. Your taxes don't stay flat with building more. You're incentivized to hold and not build - if anything. Zoning isn't in your favor either - you can't just add 10 units to your SFH. Remember - people bought when they couldn't afford to renovate - so they couldn't build out and then hold at peak development. They bought at lowest development and held. It's only after the property got really expensive that they could because they moved, rented the place out, and started raking it in.
So, what people do here is keep the properties as close to the same as possible because it's too late to build out more. (And zoning) If they're able to "renovate" in such a way where they can put up an in-law unit that adds like $100-200k in assessed value, they'll do that because then they can charge $2500+/month for that unit. Ideally, in their case, they'll just convert the garage and never get taxed more. But it adds housing but at a worse quality for both the main home owner and, likely, the person in the in-law than if they just built out a lot of nice apartments somewhere. If you have a "historical" house in San Jose - you can renovate the interior all you want and get no increase in tax assessed value as long as you don't modify the exterior. In one home I was in, they gutted the entire interior of a 900sqft 2-bedroom house into a 5-bedroom 2-bath so that they could rake in $5000+/month in rent out of 5 students going to SJSU. This resulted in 0 increase in tax assessed value - it's a common move and we can probably agree shoving 5 adults into 900sqft isn't ideal. A lot of people buy homes and will renovate them to add as many bedrooms as possible - each new bedroom is like $1000+ in rent you can charge. But - remember, the interior space doesn't increase. You just cram more people in the same square footage - different than how apartments would build up and give people the same amount of living space.
To give you another idea of why you wouldn't probably build out - my neighbor bought his house for $1.2m (This was like 2013). They spent who knows what demolishing the old home and putting up a new one. The house isn't like 5x bigger or anything - it's modestly larger than what was there. We'll say maybe 2x the interior square footage. Mostly because they added a second story on the new design. The tax assessed value is now $2.3m for that property (nearly double). If you're a landlord - would you spend $500k+ on renovating/building a property to be taxed on it too? Nah - better to just hold and rent. Besides, zoning gets complicated. There are only so many SFHs that you can make bigger and bigger to get more rent.
There's a reason why almost all the housing in the bay area is outrageously expensive but has nearly original interiors from when it was first made from 1930-1975 - it's cause people don't wanna improve the property because it will be rented anyway. The cost to improve isn't worth it - it doesn't outweigh the tax increase and the minor gains in rent. The cost to change the interiors to add more bedrooms in the same square footage is the only thing that is a sometimes worthwhile investment.
Say what you will about Texas government, but they know how to stay out of people's way and let housing supply keep up with demand efficiently. California on the other hand, is absolutely pathetic when it comes to this. So absurd watching a state whose booming economy is funneling most of that money to property owners pockets. A huge and abject failure that will be in future economics textbooks as the example of how…
By far the majority of renters I know in CA, in SF and Santa Monica, have largely abandoned any hope of homeownership and live incredibly spendy lifestyles while they can afford to be in the area. Eventually, they will wise up, move out of their expensive rentals and turn frugal - likely outside of these cities with a good possibility of leaving the state. In their absence, new young folks in their high-earning high-…
Obviously I'm not talking about people who move to the Bay area to start a business, etc.
Cross-reference with school quality and you’ve got a map I’ve wanted for some time. Difficulty: it’ll be less useful the more people have access to it :-/
Over 8x seems to be a CA thing mostly (one tile in Oregon bordering CA). Wonder if we can thank prop 13 for that? (Frozen property tax that constrains supply and encourages ani-development stance by removing the tax consequences of appreciating property)
Prop 13 just removes property tax consequences driving transactions, not housing price concerns of anti-development / anti-density owners. IF you drive those owners out via property tax increases, you have new owners just as concerned with the same anti-density drivers, maybe even more because they're in even greater debt at a higher price and can less absorb a feared price decrease.
With Prop 13 people have zero incentive to allow building because they benefit from extreme housing value increases with no downside. Prop 13 also means only new people are paying any of the real costs for the town since their property tax dwarfs the tax of old owners (one year of a new owner's property tax can be more than the entire cumulative thirty year payments of a neighbor).
I wish Prop 13 was changed so every year local town failed to build X houses (where X is some large value determine by how large the property tax spread is from new and old owners) property tax on those protected by Prop 13 would jump 10% capping out at the actual fair market valuation of the property.
This way if people don't want to build at least they're actually paying for it.
This will never happen though given the current incentives.
I think the key problem is that housing can be an investment or affordable, but it can't be both.
Earlier quoted context omitted.
Zoning is a big issue, neighborhood associations almost universally oppose new development and they have a lot of say in the process.
Right but it's unclear how Prop 13 drives that. If you repeal Prop 13, presumably it forces more people to sell, but that just means different people with closer to market price mortgage ratios. Would make it more or less likely to oppose new development if they're at risk if something changes and the price goes down on their homes?
More availability -> lower prices. A lot of people hold because the income:expense ratio on their property is really great. If your rental home goes from $1000/yr in taxes to the $15k/yr that every new homeowner is paying, you'll see that cut into your rental income. You could try to raise rent by $1000+/month but that won't happen because salaries aren't gonna rise that fast. So, you'll sell.
Thus, as a homeowner, when you go to sell then you will get less... A lot of these homes will fund peoples retirement in other regions. I see a lot of people in older age (who don't want to deal with renting, don't want to pass the home down, or didn't save for retirement) selling their homes here and moving to somewhere cheaper. They get to live a nice life off the gains they made.
I think it's about time we started asking why. Most people don't understand why. Why is it so hard to build shelter. Why is something we've done for hundreds of years so well, all the sudden become so hard and so innaccessible that only the most elite can afford it.