Tech employees in the San Jose-San Francisco-Oakland Combined Statistical Area don't rent so much as they buy a home. The upward spiral of salaries command ever higher real estate values. Conor Sen sounding the alarm about peak talent:
The Bay Area is basically experiencing a mini-1970′s runaway inflation cycle – excess demand for talent and real estate and constrained supply is making costs grow faster than revenues, at a time when revenue growth is slowing and investors seem like they’re starting to get concerned about cash flows (or lack thereof), runaway spending/stock-based compensation, and so forth. For those of us too young to remember, the 1970′s was a great time for nominal wage and real estate growth, less so for equities and “capital” more generally.
In 1970s California, the excess demand for real estate and constrained supply fomented a property tax revolt which haunts the state to this day. Homeowners helped push through Proposition 13, which encouraged residents to stay in their homes in order to enjoy financial relief. In effect, sellers of Californian houses would be penalized for re-purchasing in state. That remains the law of the land today.
A new hire fresh out of Stanford University receives public or private stock options in the company. In four years, that money fully matures. Someone in her mid to late 20s can leverage that wealth to buy a domicile in one of the most restrictive real markets in the world. But there is a catch, thanks to Proposition 13.
A new homeowner, flush with stock options, buys into the market rate for property tax. What looks bad today might be a bargain tomorrow. Pay it forward. Take on that higher tax with the comfort that someone later will move into California and underwrite your retirement.
You go out for wine with a dear friend who has recently moved to Nevada. She tells you how she made out like a bandit in Sparks, near Reno. That sounds great, save the lack of jobs for your coding skills. The employment opportunities available are a bridge too far. You would move for a better commute. Proposition 13 punishes you for doing so. Reno, Nevada, and Telsa are a rational choice. You leave California not for a better job, but for better equity.
Jim Russell, a geographer studying the relationship between migration and economic development, writes regularly for Pacific Standard.