Venture funding plummeted 30 percent in the fourth quarter of 2015 and deal flow dropped 13 percent to its lowest level since the first quarter of 2013, according to CB Insights which also notes, “this [was] not due to seasonality.”
Speaking of plummeting, local startup One Kings Lane, which raised $229 million in venture capital and was valued at $912 million two years ago, is reportedly being shopped in a fire sale and is likely to sell for less than $150 million.
At the same time, the proposed gutting and expansion of the Billionaires Row home which the co-founder of One Kings Lane purchased for $16 million in 2012 appears to be moving forward as planned.
Pincus & Pincus have taken a spectacular amount of money out of VC pockets in the last 10 years.
“plummeting” from a post-recession high in the previous quarter, to merely a number higher than any figure prior to Q4 2014.
The drop in deal flow – to the lowest level in three years – is the more alarming trend.
Could this partially be attributable to a trend in funding toward heavy follow-on investment, driving larger amounts of capital into a company in hopes that the VC rides in on the next new unicorn? Certainly there seems to be indications of cooling around the industry and economy, but these numbers seem like they could potentially be more precursor to a “plummet” than a plummet itself.
crossover investor interest is up
But but but…..juicy headlines!
Yes, ignore the trend and focus on the word choice (which was CB Insights’, by the way). As an aside, Twitter is now trading at an all-time low and has started to sublet space on Market Street.
No! Companies trading in ephemeral “products” and services aimed at the top 15% that have never made a profit and never will make a profit (especially when advertisers realize how useless on-line popups are) can no longer hoover free money?
Pshaw!
There goes my idea for an app to monitor my gaseous emissions and track them on my cell phone!
talk about “disruptive”!
Do everything you can to get behind the Warriors move to San Francisco. Call Agnos and that “I’ll do anything for a buck” streetwalker Sam Singer out on their BS.
If you value seeing the city grow in a positive economic light, we need to acknowledge that tech is not the answer. It really never has been. Another world class professional sports team and the resulting development around that site will do more to ensure our future then any silly unicorn with 10 employees.
This is a bizarre aside at best Major league sports are such a well known economic development tool. Second only to gambling casinos.
Agreed, the NFL’s shakedown of Santa Clara and now LA is a great example, you could also include the way the Olympics does the same thing to cities/regions across the globe. My comment is really about the difference between the emphasis we place locally on attracting dubious start-ups with a small number of employees while subsequently minimizing the importance of other industries. A world-class arena is not a casino, especially when the owners are willing to pay for all of it themselves.
A hyper local reality is that we have a strong precedent for the positive real estate and overall economic impact of the reuse of previously underused land in what happened in the area around the Giants stadium. The same will occur once everyone gets over the silly notion that a world class entertainment venue and additional retail, housing, etc., can exist next to a hospital and the virtually non-existent bio tech hub that is Mission Bay. Another silly attempt to promote an industry that hasn’t really boomed the way once expected.
think about what PacBell Park did to south beach and SOMA in general. that is a massive economic benefit
Bay Area cities will sink or swim together. I live in SF and I’m a fan, but the Dubz belong in Oaktown. One sports team will not make or break SF’s economy, but the loss of the Dubz will hurt Oakland, in a number of ways.
‘One Kings Lane’ is Pier One Imports — online. Amazing it lasted this long.
Fully acknowledging the silliness in the peak valuation of One Kings Lane, as well as the “correction” of $TWTR in the stock market. That said, is SS pointing these out as harbingers of things to come that will impact local real estate? Not asking for data/stats for now (as there probably isn’t a meaningful number), but rather suggesting for SS to firm up its assertion. Perhaps creating a post and tracking these types of events, current inventory level, and average $/sqft?
That’s exactly what SS is calling attention to. But no way to correlate $PSF to tech fallout until it actually happens. But in general yes, tech crash = no es my bueno for SF real estate values.
I disagree, the housing shortage is so acute values will remain the same today. The real estate values will never go down. However, home appreciation will be slowing to normal levels again in 2016, 2017 and 2018. Until we catch up with dwelling unit supply it will always be a seller’s market in the Bay Area and real estate inflation will remain steady.
Its not clear yet if this is a blip falloff in VC funding or the start of a downward trend lasting a while. It confirms the Smart Money bit a while back about early VC activity falling off. Zerohedge had a piece about such funds going out of business. SAB Capital being one of the latest.
The Chinese tech market was selling at 200 plus valuation. Higher than the 150 times valuation prior to the dot com bust. The major falloff should not be a surprise. Commodity prices falling this past year adds to the mix. Hopefully China does not go into recession as that would have serious ramifications.
Beyond that, any long-term drop in VC activity will IMO impact Bay Area real estate. Both commercial and residential. No crash but IMO there will be a modest fall off in prices this year.
Don’t expect to see many deals for at least the next 3 months at least. Uber’s upcoming IPO should be the swan song of the latest bubble, IMHO.
There’s a headline at the top of Bloomberg right now “The End of the Monetary Illusion Magnifies Shocks for Markets”.
What many of us have been saying for years, is that the Bay Area housing bubble is a direct consequence of the Fed’s extended ZIRP policy after the ’08 collapse. Main St hasn’t been borrowing from Wall St: there’s little demand growth because jobs and wages for the middle and working classes are getting crushed.
The main borrowers have been frackers (who are now getting crushed) and Sand Hill Rd & Friends.
Without the billions of dollars the VCs have poured unto useless apps for disruptive on-demand cross-platform scalable cloud-based burrito delivery, Bay Area housing would look much more like the rest of the country. Even the legitimate tech companies are overvalued, and with the global economic growth slowing down, these companies will become very vulnerable. Expect a big shakeout, one that should have happened last time. Only the legitimate and profitable businesses will survive. Yahoooo.
Once again, the local tech sector will collapse and jobs will dry up. Because the Bay Area put its economic eggs in one tech basket, unemployment will be much worse than it would have been had we not turned every PDR space into coder condos. How do you think that will affect housing?
Bay Area housing was saved last time only because of the money the Fed pumped into Wall St. The article says that the Fed has shot its wad, and that course will not be available this time.
You guys had better hope the article is wrong and the Fed has other magic bullets to save your assets.
And if you think I’m gleeful, I’m not, because this down cycle will hurt those lower down the economic ladder even more.
You guys had a great short run. But you can’t escape the economic consequences of increasing inequality (bailing out asset-holders and screwing everyone else destroys demand) in the long run.
It does look like the long run is knocking at the door.
I’ll be shocked if Salesforce Tower opens in 2018. If I’m wrong, I’ll eat crow (again).
I was wondering about Salesforce too. If the company might pull-back its commitment for so much space in the tower.
Your are spot on in that the creation of money out of nothing done by the Fed with the QEs artificially inflated the stock market. To a certain extent RE too in heavy tech centers such as the Bay Area.
There will be a tech pullback but not a collapse IMO. Remember the dot com bust – irrational exuberance at the time.
RE is not a national market but a local market. The Bay Area is one of several markets below their historic affordability levels.
There are other markets who have not seen the price run-up we have (SF up 67% in the past 3 years per Zillow) and are above their historic affordability level – meaning more affordable than ever. Some of these markets have diversified job bases, growing populations and such.
Any significant VC/tech pullback will affect RE but more so markets like the Bay Area as opposed to some of these other markets.
Dave- the dotcom bust was bailed out by 9/11 (no, I’m not saying that was planned).
9/11 led to a massive Keynesian military and security state stimulus, and, um, something about lower interest rates, laxer lendng standards, and newly-created derivatives that led to something fondly known as the “housing bubble.”
The
Basically, the US economy has been a series of Fed-engineered bubbles. The Bloomberg article suggests that the Fed has run out of ways to reflate this current bubble.
I don’t know whether that’s true. I’m sure the Fed will invent new hail Mary’s to save its Wall St masters.
We shall see.
I’m still confused at how a Central Bank that can literally create money from nothing can ever “blow its wad” or “run out of ways to reflate” anything. Now, I will admit that many folks want to kill the economy for a number of reasons, but hopefully that doesn’t mean that the Fed stops doing its job like it did for long periods of time in 2008 (when it allowed money to tighten to levels not seen since the 30s). And no, ZIRP does not mean “easy money”. Otherwise we can conclude that money was suuuper tight during the stagflation days of the 70s.
“[…]many folks want to kill the economy[…]”
There are different economies. The “financialized” economy that bankers, developers, LLs, realtors, and VCs experience is very different from the “productive” economy that the vast majority of people experience. Further, the financialized economy has squeezed out the productive economy. The very policies that have enriched bankers, developers, LLs, and realtors have crushed middle class and working class families. All that’s been left is “trickle down,” and not enough has trickled down to sustain the demand that a healthy economy requires.
Stagflation was likely the consequence of an exogenous commodity shock and the debt hangover from the Vietnam War. The end of Bretton Woods and the dawn of the petro dollar were also possible factors, but that discussion is beyond my paygrade. Eventually, Volcker sent interest rates through the roof to try to end stagflation – that was some seriously tight money — and it put the country right into the first Reagan recession.
It does seem like the Fed creates money from nothing. It’s not commonly understood how money is created. The Fed creates money on a computer screen; for every account that is credited, a different account has to be debited. Basic accounting. One of the _many_ reasons for this small rate hike is to try to begin to attempt to start to think about balancing the books. Yellin & Co are first and foremost beholden to Wall St, but they are also concerned about their own hides. There have been calls to audit the Fed, and anti-banker sentiment is on the rise as the majority of people fall further and further behind every year. Perhaps Yellin & Co don’t want to be caught holding the bag. In any case, the current state of the economy (piss-poor for most Americans) is a direct consequence of ZIRP. If your only concern is to boost your assets, than of course you want ZIRP ad infinitum. If you want a sustainable economy that works for most people, ZIRP has to end.
I think I’d prefer the Fed to focus on its dual mandate rather than dwell on imaginary bubbles. The Fed has continuously failed to meet its inflation target for almost a decade now, which has meant higher unemployment than necessary for the same amount of time. Mostly because of folks like you contributing to a political environment where anything other than bumping interest rates up or down is considered crazy.
I have no idea what you’re trying to say with your “balance the books” analogy. The Fed isn’t a household or business – the size of the balance sheet is basically irrelevant, no matter the Austrians have made you believe.
The Fed’s dual mandate is a crock. The Fed only meets its inflation target when it’s in Wall St’s interest to do so. A poster on Naked Capitalism said it best a few weeks ago: the purpose of the Fed is , “[t]o produce the maximum possible non-revolutionary wealth gap between America’s oligarchs and its masses.”
The Austrians are crackpots. The best description I’ve read of how money is created is MMT, but YMMV.
Ok, then your problem seems to be that the Fed has not done its job to meet its dual mandate – and on that we fully agree. The Fed pursued crazy tight money over the past decade, and continues to do so with this insane rate increase of last month. The Fed should always be willing to do whatever it takes to maintain 2% longterm inflation, even if that means periods of 5% inflation, eliminating interest on reserves, taking the fed funds rate negative at times, trillions in QE, etc.
The problem? Folks on the right (the banksters you describe) and folks on the left (you) both always want a higher fed funds rate because…? The incentive structure from the right at least makes sense, but the reason from the left are baffling to me. Stuff like because fixed incomes or because balance the books or because China. Very bizarre.
ZIRP is “crazy tight money”?! QE 1,2,& 3 are crazy tight money?!! What, then, is “loose” money?
The dual mandate is a myth for public consumption, to hide the Fed’s main concern, which is with propping up asset prices of the .01% that owns most of the assets.
You sound like you read Dean Baker. I think leaving ZIRP is one of the few issues he’s wrong on.
Yes, even this small rate hike will result in less borrowing and negatively affect “job creation.” The problem is that the Fed policies aimed at propping up asset prices (ZIRP, QE1/2/3) overwhelm and crowd out capital investment in the productive sector.
With the manic quest for yield that is a consequence of ZIRP, capital has been deployed into speculative asset bubbles (hello, San Francisco!), stock buybacks, and other products of the financial sector which has displaced the productive sector of the economy.
Instead of serving Main St (the productive economy), Wall St (the financial economy) has displaced it. As a result of ZIRP and QE1/2/3, instead of helping Main St create jobs, Wall St is instead raiding and pillaging Main St for every last drop of yield. The amount of jobs that certainly will be lost due to rising interest rates and the end of monetary stimulus (which really is mainly a stimulus for the financial sector), would be greatly compensated for by the jobs created under the type of fiscal policies that had fifty years of proven success before Milton Friedman’s voodoo neo-liberalism coup d’etat.
The current bubble is a result of monetary engineering. This monetary engineering has been great for bankers, developers, architects, landlords, realtors, VCs, and on-demand cross-platform disruptive cloud-based pizza-delivery apphole startups in the Mission. This monetary engineering has destroyed most of the rest of the economy (health “care” and arms mfg excepted). Good jobs for the working- and middle classes can only be restored with the end of monetary engineering (and this means raising interest rates, which will hurt jobs in the short term), and the resumption of proven fiscal policies.
The causes, motivations, and mechanisms of the political inertia preventing the return of policies beneficial to lower economic rungs is the essential question facing contemporary political science. I have my theories, but they don’t really belong on a local housing blog!
You can’t judge the tightness of money by interest rates. Loose money is when the money supply is expanding at a rate fast enough to induce inflation. In other words, the 15% interest rates of the 70s are not indicative that money was tight then any more than the interest rates of 0% over the last few years are indicative of money being loose now. The inflation rates of 20+% in the 70s do indicate that monetary policy was very loose, and the bordering-on-deflation “inflation” of the past few years shows how tight policy was (and still is, to a lesser degree).
As I stated before, I absolutely agree with you that the tight money of the past decade has been very helpful to Wall Street. If the Fed had proper monetary policy to support full employment, we would have had substantially larger QE, no IOR, perhaps negative interest rates, etc. With that, we’d have had a full Main Street recovery and 10+ million additional jobs now (the participation rate would have never plummeted so much), and you wouldn’t be arguing to do Wall Street’s bidding now. As it is, they’ve convinced you to support the exact thing that you think you’re arguing against – tighter money, always!
“If the Fed had proper monetary policy to support full employment, we would have had substantially larger QE, no IOR, perhaps negative interest rates”
Substantially larger QE? Negative IR? mon dieu
You demonstrate the saw, “when your only tool is a hammer, every problem is a nail”
SS doesn’t let me post links, but FRED money supply charts show the money supply going nearly vertical in 2008. Google it. It’s been an epic period of money creation. QE 1/2/3 (and several other vehicles as well) have pumped literally trillions of dollars into the system. It couldn’t possibly be any looser. To the surprise of the monetarists, this hasn’t caused the expected inflation (not counting the unaccounted asset bubble inflation, and now, finally, food and utility inflation). This goes against essential monetarist theory, so monetarists claim this wasn’t loose money at all — it was tight all along! Uncle Milty Friedman can’t fail, he can only be failed.
Monetary stimulus only works as expected in a supply-constrained economy. However, we have over-capacity. What we don’t have is demand. You can’t stimulate demand by giving more money to people who don’t need more money. You can’t stimulate demand by pushing on a string. You can’t stimulate demand by pushing people further into debt. Are you opposed to demand-side fiscal policy because you’ve never heard of it, you truly believe it doesn’t work (despite fifty years of evidence to the contrary), or because you don’t think money should be given to anyone but bankers?
Monetary policy has failed.
Supply side policy has failed.
Maybe it’s time to try something else (perhaps policies with a proven track record?). Is it just too distasteful to target stimulus to workers who will spend instead of to bankers who will speculate?
It is true the QEs have not worked. Nearly 4 trillion in QE money since 2008 and the GDP is hovering around an anemic 2.2%.
QE has not worked for Japan’s economy in almost 20 years of it.
Of course the monetary base exploded in 2008 – it was by far the tightest that money has been since the 30s. Should I flip that around and say, “did you see the size of the fiscal expansion package in 2009? Largest ever! And you’re saying that we need more!?!?”
Listen, I’m absolutely sympathetic to using fiscal policy when monetary policy is ineffective (due to political impediments), which is why I supported the 2009 stimulus bill, and would have supported a larger one. However, it’s simply wrong to say that “monetary policy has failed”, when we’ve hardly even tried it. Japan has seen better results in two years of sorta aggressive QE compared to 25 years of over the top loose fiscal policy.
Also, not sure why you keep trying to paint me as a conservative or something. It’s weird. Krugman and Delong, probably the two most mainstream left economists, agreed that the Fed’s rate increase in December was absolute insanity.
@Dave, um…Japan didn’t try QE until the last two years. You’re probably thinking about normal old fiscal Keynesianism.
Au contraire, Dave, the QEs have worked. Without ZIRP and QE 1/2/3, you’d have no asset bubbles, no tech bubble, no Bay Area housing bubble — and our economy would look like the rest of the country’s.
For some of you, the Feds policies have been very good indeed. For the vast majority of the nation, not so much.
Your bubble talk and elimination of all monetary policy sounds very Austrian/goldbuggy, two beers. Have you been drinking a bit much of the Paul koolaid?
You keep banging on that broken drum. Austrian/Rand/goldbuggery? You are way off.
You seem so constrained by a simplistic freshman neo-classical econ paradigm that you think the only criticism of the central bank or monetarism comes from Austrian/Randian goldbugs (who I agree are crackpots and clowns).
There’s a whole world of econ beyond Uncle Milty and the Krugster. Try exploring some heterodox econ: Hyman Minsky, Jamie Galbraith, Steve Keens, Bill Black, Randall Wray, Stephanie Kelton. But if predictive accuracy and empirical methodology offend you, avert your eyes.
And if you think the important debate in economics is between freshwater and saltwater, you’re fight last century’s battle.
Try reading some Scott Sumner, Lars Christensen, or Christina Romer if you’d like to see more about my views, rather than continual banging of the “supply side” drum (lol).
The biggest irony on this front imho is that Congress (with the blessing of the Pres.) went all in on austerity in 2011 — when the economy needed just the opposite. The “fiscal drag” that resulted slowed our recovery by years. And there was not a great deal of help the Fed could offer at that point as we were already at 0% interest.
And to make the irony circle complete, a few weeks ago, when the economy is (finally) looking fairly healthy, Congress weighs in with a stimulus package — loosening spending caps and making a number of tax cuts permanent. The U.S. economy was looking pretty decent anyway, and this should only push it further in the direction of growth.
Regardless of whether VC funding ticks up or down a few percentage points, a healthy economy should keep housing pretty sound in the near term. Of course, the economy could always take some hit from a nasty shock such as an Iran/Saudi Arabia war. That would have a bigger effect on things than blips in fed funds rates or VC funding variations.
anona-
Never heard of Lars, but Sumner and Romer are Milton Friedman Light — neo-classical monetarists with a liberal conscience — meaning they wouldn’t oppose fiscal stimulus if people were lying dying in the streets (Uncle Milty would’ve seen people starve before giving them a govt job). You might as well cite Larry Summers and Bernanke, the architects of the “recovery.”
The problem is actually very simple to understand, once you get beyond the cognitive dissonance that accompanies recognition of one’s failed ideology: again, monetary stimulus doesn’t work in a demand-constrained economy when supply is at over-capacity. It only makes things worse by sparking speculation in financial engineering (i.e. the non-productive economy), which saps the productive economy even more, leading to a vicious circle of declining incomes and declining demand.
So how do you explain Japan? 20 years of your failed ideology, now two years of actual inflation and unemployment rates that were previously thought to be impossible.
Outside of the lead up to WWII, where exactly has fiscal stimulus alone worked?
How exactly are you defining “demand-constrained” economy, first of all?
“How exactly are you defining “demand-constrained” economy, first of all?”
On a national level, real wages have been declining for years, and most Americans are spending what little they have left over after bills on trying to pay down the debt that most of them went into to try to stay afloat during the previous two bubbles. So, consumer demand has cratered.
International shipping and domestic rail traffic are getting crushed, because people don’t have any money left to keep consumer economies afloat.
It’s a massive demand constraint, which can only be remedied through fiscal policy. Why? Because most businesses can’t, won’t, and shouldn’t expand when people don’t have money to spend. After the GFC, instead of govt fiscal stimulus (there was some, but it was way too small, and largely consisted of tax cuts instead of jobs programs), we got monetary stimulus, and I’ve already explained why that only made the situation worse for everyone but asset holders and appholes.
There are times when monetary stimulus is called for, but they are rare, and this isn’t one of them. Again, the reason why we had this massive monetary stimulus and a negligible fiscal one is political.
You claimed that the Fed was responsible for the first tech bubble as well. Are you standing by that claim? Are you saying that Japan’s 20 years of fiscal stimulus was just never enough? That their two years of monetary stimulus is just inflating a bubble even though Japan’s unemployment is now lower than ever (including during the 80s)?
And no, I don’t think you’ve “explained” why monetary policy hasn’t worked here, because it’s the only thing that absolutely has worked (as I’ve explained). It just was never large enough to work quickly, so needless suffering occurred.
“because it’s the only thing that absolutely has worked”
That is utterly and empirically wrong. Cognitive dissonance obviates further discussion on this, it seems.
Links to empirical studies showing that absent QE we’d see a lower unemployment rate than we do now. And no, we can’t look at an alternative world where fiscal policy injected trillions more, because your claim is that monetary policy has done nothing. My claim is simply that absent QE we’d have a higher unemployment rate than we do now.
The gloating is going to be unbearable. I can feel it.
Gloating? The downturn is going to hurt those on lower economic rungs even more than those who’ve lived well off the easy money ZIRP.
It’s always been that way. Workers always pay the most for the sins of the high asset class. Don’t worry, woolie, the workers will do their best to bail you out again!
I can’t hear you over all the cheering.
shoot the messenger.
I doubt it will come to that, but who can predict the future.
Thanks for the warning. I’ll be wary around gun-toting bankers, developers, landlords, and realtors.
Don’t worry 2b’s, trump will save us. New era. Reagan II.
Cause you know he’s gonna win, don’t matter who we all around here vote for.
What was easy about money in Q4 2008? It was basically the tightest money has been since the 30s. Are you going to tell me that teh 15+% interest rates of the 70s indicated tight money?
Never reason from a nominal interest rate.
“You guys had a great short run. But you can’t escape the economic consequences of increasing inequality (bailing out asset-holders and screwing everyone else destroys demand) in the long run.” you write this as if people on socketsite were part of a grand conspiracy. besides getting probed by aliens, i dont have anything this interesting to offer
There’s no conspiracy, just people with common interests.
You may be one of “you guys” if:
1. you’ve put up a post on SS that consisted solely of “Build it. Next.”
2. you blame rent control for the high cost of rentals.
3. you’re a banker, a builder, an architect, a landlord, a realtor.
4. you don’t understand that a healthy city has workers of different educational and economic levels, and that people lower down the economic ladder need to be able to live and work there.
5. you want to see your working class neighborhood gentrified so that your property values go up, even though long-time families are uprooted.
6. you see poverty and homelessness as an imposition on your right to increasing asset values, instead of as a consequence of the policies that have boosted those asset values.
I belong to one of those groups, and I was still right with ya for most of that. But the no. 6 homelessness call was a real stretch, bud. Homelessness has been a constant for quite a long while now. Things like Vegas and Reno sending us their mentally ill, or other cities putting people on Greyhounds, because it was known that we gave out money? Not the fault of your financialized class.
Sorry, I didn’t mean to imply that homelessness is a new problem. Homelessness in anglo-saxon lands dates back at least hundreds of years to the enclosures.
It’s generally accepted that homelessness became a substantial problem in California when Gov Reagan cut funding for mental hospitals. The problem worsened with returning Vietnam vets not getting proper care, and accelerated with the beginning of the generational housing bubble in the early 80s.
In any case, homelessness is a national, not a local, regional, or even state problem. The problem can only be solved at the federal level. If one city enacts programs to help the homeless, then that city becomes the dumping-ground for every other city, making the problem even worse in the magnet city. San Francisco has a homeless problem precisely because the homeless aren’t treated as badly here as they are in most other cities. If all cities mad it a policy to provide basic amenities to homeless people as needed, the problem would be so spread out as to be barely noticeable. But we can’t do that, because communism.
Serious question, two beers: if the working class neighborhood being gentrified is majority homeowner, do you still see that as a negative? If homeowners in the neighborhood are being “uprooted” by selling for massive profits?
Things simply change, so is it more that you want to ensure that the uprooting doesn’t happen, or more that current residents are provided access to a similar or better place to live when demographic shifts occur?
Are you saying the Mission is majority homeowners?
Homeowners selling their property isn’t an issue. I’m concerned about tenants who are displaced by gentrification, because change.
No, of course not. I’m talking more about places like the Bayview.
2b’s- brah, renting isn’t permanent. Renters should expect to deal with the winds of change. You want permanence? Find a nabe you can afford, save up, and buy a damn place. Then you can live there until you die. Lazy ass tenants who have a free windfall due to RC is not what makes a neighborhood better.
And as for your list of 6 types of evil doers, it’s really the top 0.1% that are the main culprits. We in the mere top 1-5% are more like you bro. I mean, we like chomping down al pastor super burritos at el farolito just like the next guy 😉
2 beers, ive only heard 1 and 2 on here. im sure there are some 3s, but ive never read anyone assert 4,5 or 6.
The only one im close to asserting is 1. But im not so black and white. It is clear that we need to build much more to fill the deamnd curve. and your assertion that the building is on luxe units. That is a falsehood that is caused by already high prices. If you build a rathole in this town, it will still be near a million dollars because there is a huge demand from people with money. the only way to support lower income housing is through subsidizing. i think we should do that to some degree, but where is the limit. If its too much, it just becaomes a huge enabler and entitlement society. SF is expensive because the economy is booming, there are a ton of high paying jobs, and there is wealth accumulation (mostly other than RE). the only way to stop that is througha recession, and who would want that.
If you havent notices, there is gentrification in almsot every major coastal city with a hot econonmy. Definitely a big problem in NYC, Boston and DC, as there are more jobs and more people are migrating to the cities. How do you propose to stop that?
“SF is expensive because the economy is booming, there are a ton of high paying jobs, and there is wealth accumulation”
I would say that SF is expensive because Fed policy for the last two decades has been to blow asset bubble after asset bubble, and Silicon Valley speculation has spilled over to SF. Yes, there is much legitimate economic growth in SV and surroundings, but even all of the FANGs are vastly overvalued by historic P/E standards, and excess Wall St liquidity has fueled so much speculation that hundreds of utterly useless companies have been created locally (employing thousands of people), and when these dry up, local housing demand will once again plummet. The economy is (er, was) booming in just a few cities benefiting from QE/ZIRP-fueled speculation. The “huge enabler and entitlement society” is actually the financial (FIRE) sector, which has hollowed out Main St while fattening its own coffers. This is an inherently unsustainable economy: economies ultimately have to be based on productivity, not speculation and financial engineering. The world is now plunging headfirst into another round of banker-induced economic catastrophe, and SF isn’t immune to this — you can’t maintain your property values and rents dependent on millenials coding disruptive on-demand cross-network horizontally-scalable cloud-based sharing-economy pizza delivery drone messaging app advertising platforms.
SF has been historically more expensive than most other parts of the country. That is not new. What has accelerated is the disparity between SF and other parts of the country.
The Fed policy has contributed to this but the fact is the Bay Area (coast) is a desirable place to live and building has ben constrained in the BA generally. Try to build in Pacifica. it is not easy. So multiple factors involved here.
A tech correction/downturn will impact SF and places like Boston and NYC more than many other places. NYC is, I believe, the largest VC funding center after the SV.
Other areas have come back since 2008 but are not at 2006 price levels.
Some of these urban centers have job and population growth. A good millennial population attraction and are revitalizing their downtowns.
Some of these centers have more diversified economies. Their jobs are much more so in industries actually producing something and not just there because of VC funding. VC funding has its place but has gone to an extreme where the fundamentals of some companies getting the money are not taken into account near enough.
There will IMO be a balancing out between SF/SV and certain other tech heavy places and those with more diverse bases. Like Cleveland or the Hampton Road area.
According to 2b’s: “excess Wall St liquidity has fueled so much speculation that hundreds of utterly useless companies have been created locally (employing thousands of people), and when these dry up, local housing demand will once again plummet.”
So if that’s the case, what’s da problem? Just wait and rents will plummet and everything will be hunky dory again for the working man.
the VC money poured into various industries over the past 5 year will be enough to sustain many companies during a long downturn. this is also different that the dotcom boom.
“Without the billions of dollars the VCs have poured unto useless apps for disruptive on-demand cross-platform scalable cloud-based burrito delivery, Bay Area housing would look much more like the rest of the country.”
I believe you mean: “Without the billions of dollars of profits from Apple and Google, Bay Area housing would look much more like the rest of the country.”
Apple and Google are neither startups nor VC driven. Most of the “tech” jobs in this bubble have been the result of billions of dollars funding new startups that do incredibly important and useful things like notifying you when Beyonce has a new song to download, turning on your home entertainment center when you’re pulling into the garage so you don’t have to wait ten seconds when you sit down, or combining all the messages from all your other message-combining apps. These are the jobs that are going to vanish first.
But since you mentioned it, Apple is facing serious headwinds going forward, and Google is mainly just an ad platform, and ads get crushed in downturns.
sfist has a story up about a new 15 minute street-corner gourmet pizza uber-delivery app just for the Mission. First one’s free! My above attempt at mocking these useless apps pales compared to the utter absurdity of the real ones.
I’ll agree with you that many of the new companies are stupid. Uber for Pizza, etc.
Check your stats on the size of those companies vs. the size of Apple (535B market cap) and Google (490B). They dwarf the combined size of these companies. Add in Facebook (275B), Oracle (145B), etc. It’s not jobs from startups that are driving this. It’s jobs from big established technology companies. (Not saying that’s good or bad, I’m just making the observation)
reaching again with apple and google
SF will never look like the rest of the country, real estate-wise….it’s been an expensive market since the 80’s at least. However (and despite your hyperbole), one might say SF would perform similarly to the rest of the country in percentage growth. In this expansion we’ve been a bright spot for California and the US in job growth, wage growth and thus real estate valuations. That could revert to a mean, after some degree of pull-back IF you’re right about the emptiness of the tech economy. (Not that I say I’m agreeing with you at all).
Salesforce Tower is out of the foundation and going up. You don’t stop projects at this stage unless the world falls apart.
Exactly. SF has always been an expensive market relative to other areas of the country. Not always but even before the 80s.
What has happened in the past 10/20 years is that the disparity between SF and most other markets has grown even greater.
To the point where SF is less affordable than ever while some other markets are more affordable or as affordable as they have historically been.
Its likely a case where appreciation in SF will fall more into line with that of other markets. Maybe some markets might appreciate more over the next number of years. SF will still remain one of the most expensive housing markets in the US IMO.
the NYC and Boston and Seattle markets have increased in value almost as much over the past 20 yrs % wise. there is certainly a much bigger valuation gain to coastal cities over the past 20 years though. thats where the big divergence is happening.
Right. I said “most” other markets. NYC, Boston and Seattle are among the few that have kept pace with SF.
In Seattle’s case, its affordability is much better than SF so that may be a RE market to look at as an investor going forward.
NYC and Boston not so much.
SF is still mucho cheap compared to many international cities. Still a bargain relative to central London, Singapore, Mumbai, Moscow, etc., etc. I really don’t see what the big deal is. Desireable cities have become an international phenomenon. You want cheap? Move to Iowa. It’s still there.
My question is will Salesforce end up sub-leasing out some of the space they had committed to? They were on an office leasing tear fairly recently and how much of that was irrational exuberance?
Funny how after all of the recent talk of need of “more housing” there is going to be a collapse in demand for all asset types including housing and office space. I can’t wait. Get your dry powder ready!
It looks like there will be a collapse in demand for office space, and luxury and speculative housing. There will be an over-supply compared to demand.
As incomes decline and wealth evaporates, there will an _increase_ in demand for _affordable_ housing.
And I expect there will be sustained or increased demand for non-office commercial space, as former app geniuses move into more productive (but lower-paying) lines of work. The problem is that there is precious little non-office commercial space left, because SF piled onto the unicorn train (I know, mixed metaphor..)
I think you are over-stating the severity of what might happen. Hopefully so. A pullback yes, how much of one is the question.
SF is not all hi-tech. I think SS had a piece a ways back about the number of tech jobs in the City. Very small. Twitter comprised the lion’s share of them as I recall.
Fettke did a webinar on 12/10/15 that pretty much laid out what is happening now. Using data out there for any to look. Too many IMO are/were in denial.
Things do not go up in a straight line. Its cycles. If this turns out to be a major downturn there will as sure as day follows night, be a cycle upwards and a recovery.
7% of SF jobs are tech, and Salesforce is largest tech employer and has a ton of revenue
SF at 7% is hardly tech-heavy jobwise. SV is another matter.
According to SPUR in 2015, 9% were directly tech, and broader definitions would increase it to 12-13%. Moreover, 2/3 of job GROWTH was either tech or due to a tech multiplier effect (because tech jobs are so highly paid, on average). We should not think a major downturn in tech would only have a “minor” impact on San Francisco. Tech has been THE force propelling the real estate sector, and that would be felt if there were any meaningful reversal in tech.
curmudgeon is right. Tech is not the SF job sector it is in SV but many tech folks in SV buy homes in SF.
So a tech downturn will lead to a decrease in RE prices in the SV and throughout the Bay Area but mostly, beyond the SV, on the Peninsula.
Dent is a negative person on this and says a 30% fall-off. No way that much IMO but a fall-off yes.
Meant to say a downturn mostly, beyond SV, on the Peninsula and in SF.
“Things do not go up in a straight line.”
True. They also tend not to “plateau” or “level off.” When not going up, “things” are usually going down.
there will not be an oversupply of housing compared to demand. we are so far down on the supply curve that this could only happen in a worst case regional catastrophe situation. Most housing being built in SF is not “luxury”. The prices might be luxury, but you can build a bland box with cheap materials, and still get $900K for a 2bd. Its not luxury housing. It just a vast amount of demand vs. a miniscule amount of supply. Please tell us what affordable market rate housing might look like in SF.
@two beers I am a landlord – several single family homes rented out to working class families at affordable rents, I am a banker in the sense I do PLs (read the Hounds of Distributism for a good take on banking) and I’ve participated in LLCs.
Guess that makes me one of them. Hardly really. IMO the little W2 guy has few options to build wealth. For me being a small-time RE investor has made a world of difference. Allowing me to take advantage of tax breaks afforded, usually, to the upper echelon.
There is plenty to bemoan if one is “just’ a working class stiff but one needs to also get educated, learn and make the effort to garner wealth for oneself and one’s family. it is not easy to be sure but it is not impossible either.
Pretty much everything two bears (beers) posts is correct. I’m surprised he still bothers.
1) Yes it was all hot money. Everything was subsidized by central banks from China to the US to the EU fueled this largest in history bubble, that will bring a global depression, IMO. All your housing wealth was directly subsidized by our government. $12 in no interest loans, and even $3 trillion of RMBS crap bought our own treasury department.
2)Yes, us workers that are paying attention KNOW we will be devastated. But a depression beats this slow crawl to one, wherein wealth and speculators evict us and continue to parrot bullshit free market chicago school crap. And even force out our neighborhood businesses.
3)Housing is inelastic. Higher valuations bring in outside speculative money. Building more high end sh*t, just brings in trillions more ‘outside’ speculation. What we were saying from the beginning.
Every economist, and writer about economics that predicted back in 2006 the crash of 2008, has been saying since the 2nd year of Obama (and Bernanke, Geithner, Yellen then etc) that they were building another more devastating bubble. (Yves Smith, Hudson, Richter, Nomi Prins, William Black etc), but when you’re making fast hot subsidized millions, society or it’s real wealth and health matter nothing. We’ve seen this again. And of course the working class people will be picking up the pieces, creating mutual aid networks and self defense networks, while the increased violence hits us the most. We know all this. And we are brewing in a very rich stew of hatred for both your parities, and the vast dislocation from our neighborhoods all over the country that has happened. Occupy will be a walk in the park. Pun Intenended. For us mostly. Cuz we will lose for a long long time. But don’t think for a minute, the urban working class couldn’t sniff this out 6 years ago. Lock your gates better, a change is gonna come.
“Building more high end sh*t, just brings in trillions more ‘outside’ speculation. What we were saying from the beginning. ” how do you build “low end sh*t” when the demand from the high end will eat up anything. even a house of straw would garner $1M.
seriously TOmmy or 2 beers, how do you build non-luxury housing, with non-luxury process with so much demand at the high end? i really would love to understand how people think this can happen
moto-
I think you’re asking the wrong question, but that is understandable when one’s primary concern is with maintaining and increasing the value of one’s assets. Neo-classical economics will provides pat (but empirically-dubious) answers and suggests equally non-empirical solutions.
For people more concerned with the quality of life for all economic strata (not just asset owners), the more important question is, what are the root causes of the lack of affordable housing, and how can those be addressed? Only then can we be proactive (correcting the causes of the lack of affordable housing), and not merely reactive (building expensive profit-maximizing coder-condos to meet current bubble demand).
Tommy and I have variously responded to this question going back some time on SS. We clearly aren’t bankers/developers/LLs/realtors, so we see the problem in completely different terms than most of you guys do — many of you don’t even see the lack of affordable housing as a problem in itself — and therefore we have very different solutions.
Tommy- h/t NC, Hudson, Wolf et al.
so you don’t want to answer the question? #1, im a scientisit #2. I own but could care less about the appreciation of my home, as it is a place I love to live in. I bought it for that reason and not for investment reasons. #3. I am concerned about economing well-being of all humans.
One area that we likely differ is that i don’t see SF as an isolate bubble, and within SF i dont see places like the Mission as an isolated bubble. I also don’t see that everyone has a human right to live in the most expensive eneighborhoods in the country. There are many places in bay area more affordable than others. I don beleive in some level of subsidization for those truly in need. But for any educated person, i can’t understand the need to be subsidized when there is somewhere else close by that is affordable. I would never live in SF if i didnt make enough to comfortably do so. this needs to be addressed regiona
however, you still havent addressed the question. In a market with very high demand by wealthy people, how do you build “non-luxury” housing? Again, any crap condo with crap materials will still sell for a very high price since demand still far outweighs supply. i knwo there are much bigger philiosphosical questions about why the market is the way it is, but thats not something that can be resolved practically. In our current and foreseeable environment, whats your solution.? I understand you ahve a problem with many things, but would honestly like to know if you ahve any practical suggestions
On what data are you basing your statement that there is a “current bubble demand” for housing in SF? I ask because the sales numbers have not been high in SF (e.g. for SFRs, 2015’s sales were the lowest in 15 years save for the peak recession years of 2008 and 2009 – 5% lower than 2014, which was 8.6% lower than 2013).* Prices are high, but sales volume has not been. This would appear from classical economics to indicate that prices have been driven by supply constraints and not by particularly high demand.
*MLS condo sales have been basically flat for four years – during which time prices rose dramatically – and were 9% lower in 2015 than the prior year.
moto- I’ve gone over this repeatedly. The SF housing bubble is a direct consequence of Fed monetary policy. That monetary policy is directly responsible for a) the local unicorn bubble, which is the primary (but not only) fuel for the current and localized housing bubble; b) the recessionary conditions facing most of the country outside of a few cities; and c) the extreme volatility seen in almost every international market (stocks, commodities, etc), and which is going to lead to an ugly end.
I’d link to articles expounding on these points, but my posts with links don’t get out of mod.
In a bubble, you can’t build to satisfy demand. That’s what makes it a bubble, fer cryin out loud. So your question has a false premise. Again, the only way to deal with the lack of housing us to deal with the underlying macro causes. The inability to discuss and act on these macro problems is why I say this is a political problem, not an economic one.
So, to answer your question is pointless, because it’s based on a false premise.
“Again, the only way to deal with the lack of housing us to deal with the underlying macro causes. ”
Ok, then how would you deal with the underlying macro issues? besides your idea to stop building “luxury” units, even though you have no idea how to do “non-luxury” housing
moto –
No offense, but it doesn’t look as if you understand the difference between macro and micro.
If you want to save capitalism from devouring itself, the smart thing to do before you create the dystopia that Tommy describes is to make the Fed transparent and democratically accountable, stop the financial engineering that only benefits asset holders and screws workers, and implement empirically-proven fiscal policy to improve conditions lower down on the economic ladder. This is how you correct the affordable housing crisis and create a stable economy. It’s a macro problem, and that it can’t be acknowledged let alone dealt with is a political problem, and goes to the heart of problems inherent in capitalism.
Do you have some links handy showing “empirically proven fiscal policy”? It seems that if monetary policy is currently controlling so much it would be impossible to prove what fiscal policy could and does do, no?
i very much do understand. you complain a lot about the micro-problem of building “luxury” housing. I asked you what you’re solutions was to the micro problem. You said I ahve to look at the macro problem driving the microproblem. I said how would you deal with the macro problem. Again, no real solutions. I dont find its particularly helpful for people to complain about something and not have any proposals for solutions. I personally don’t think we can fix the “macro” problems you describe, but we can address some of the micro problems. the most obvious way is by relaxing zoning and building more housing, especially in areas like the Mission with lots of public transport and in SOMA that is walkable.
two beers, what’s your definition of “affordable housing”? If you qualify for BMR, you can apply via the lottery process. If you do not qualify for BMR, your income is enough for you to rent or buy housing you need, could be in Bayview or out of San Francisco, but I think you will be fine if you earn more than the BMR income.
When there are 300k jelly beans in SF and there are 500k demand, the extra 200k will not get a jelly bean. Jelly bean price will rise enough so that the extra 200k people will decide to not to buy a jelly bean. This is a problem of inadequate supply and overheated demand, it is not a lack of “affordable jelly bean”. You can either build more jelly beans in the city, or move more people out of city to a location where jelly beans are more available and more affordable.
First Uber for cheap lunches (a.k.a. spoonrocket) Now Uber for kids a.k.a. Shuddle. Another twelve mill bites the dust. Welcome to the dot com deadpool v 2.0. But I’m sure there’s never been a better time to buy!