In 1993, I rented with some friends a large three-bedroom apartment on Whisman Road in Mountain View. We paid $1,690 per month in 2013 dollars. ($1050 nominal.)
For a bit of 1995, I rented a one-bedroom apartment on Treat Avenue in the Mission District of San Francisco. It had its own one-car garage attached. (A very tiny garage, but I could and did park my little 1980 Plymouth Champ in the spot.) I paid $1,220 in 2013 dollars. Four years later, in the summer of 2000, I re-rented the same place for the same nominal price; the real rent had declined to $1,030.
Most miraculously, I also rented a tiny one-bedroom in Mountain View between 1995 and 1998, with occasional sublets. The rent. Hold your breath: $604 in 2013 dollars. Yes, it was terrible (the “kitchen” was only big enough for a mini-fridge) and there was drug-dealing in the cul-de-sac. (Higdon Avenue, if you know the area.) So what? It was cheap.
It may be hard to believe, but back in 1992 you could grab a two-bedroom on Alma Street in Palo Alto for $1,330 in 2013 dollars without needing to search for more than a single day. A housing search consisted of driving around looking for the “for rent” signs and then calling the landlords. This situation briefly changed during the high point of the late-nineties Internet bubble, but appeared to return to normal right after the dot-com bubble burst in early ‘00.
I cannot find what the Treat or Higdon Avenue units rent for now (although both buildings still exist, unchanged from the outside) but the Whisman Road complex is professionally managed and can be found on the Internet. There are currently no three-bedrooms available,but the website states that the floor plan we rented for $1,690 (the Gramercy) now goes for between $3,030 and $3,580. (Two-bedroom flats can be had for $3,060.) That is a real increase somewhere between 1.8 and 2.1 times our old rent.
Think about the housing market in the Bay Area and weep for America. Then get really really really angry at every middle-class homeowner in the damn state of California.
For a well-researched article on how the Bay Area got to its currently surreal point, see this piece.
The article tries to find a bit of relief in the fact that the Bay Area has a great deal of intergenerational income mobility. In San Jose, for example, a child born into the bottom fifth of the income distribution had a 12.9% chance of making it to the top fifth; San Francisco was second with 12.2%. (Mountain View is considered part of San Jose for the purposes of these data.) This puts them in the top five, along with Salt Lake City, Boston, and Pittsburgh.
So how dire can the situation be? Sure, expensive housing is bad, but the Bay Area remains good for poor people.
Only that may be wrong. Consider that the study looks at people born in 1980-82. It then measures their parents’ income in 1996-2000 and their personal income in 2011-12. The problem with using the study dismiss the effect of the recently-created housing shortage is twofold.
First, the Bay Area does not do well in some mysterious unexplained California miracle sort of way. The spatial variation in intergenerational mobility is strongly correlated with : (1) residential segregation, (2) income inequality, (3) school quality, (4) social capital, and (5) family structure. Inasmuch as the current housing insanity affects those five variables, it will alter future intergenerational mobility. High rents, for example, make it harder for poorer people to live in good school districts or partake in the collective social capital of rich areas.
Second, a lot of poor households in the Bay Area owned their homes in 1996-2000. Those homes increased immensely in value. It is quite possible to believe that the Bay Area overperformed places like Minneapolis and Houston because of that increase in wealth. If that is true, then the Bay Area will fall down in the rankings as home-ownership moves increasingly out of range. (And, presumably, as price increases slow down by pricing out even high-income buyers. Although who knows what the limit of that process actually is?)
In short: (a) The housing crisis really is never-explored territory for much of the United States; and (b) past performance may therefore not predict future results.
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