It's about housing, not taxes

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Texas Guv Rick Perry made a spectacle of himself trying to take businesses away from California, but as everyone with any sense predicted, his trip was a bust. Fact is, very few businessess anywhere make major relocation decisions because of taxes and regulations. But as Calitics points out (with a nice chart), the real reason people have left California of late is the cost of housing.

The so-called "job creators" have enough money to afford to live here, so they aren't going anywhere. What's happening is that the rest of the workforce, particularly the middle-class workforce, is finding the gap between the amount they can earn and the amount they have to pay for a home is getting so radical that they're leaving altogether.

That's happening in San Francisco, as evictions are driving people out of the city. Some may move to other parts of the Bay Area, creating what most environmentalists and economists agree is an unsustainable situation: Workers living so far from their jobs that vast amounts of energy have to be expended getting them back and forth. But the data shows that people are leaving California altogether. Calitics:

If we are to really continue our growth, we must address the housing crunch that is going on, especially along the coast. That isn't accomplished through slashing services and budgets, but rather working to create new affordable housing solutions and ways for young families to stay here in California, where most would rather stay.

And let's remember: One of the biggest factors that does drive business location decisions is the availability of skilled labor. If people are leaving the state because they can't afford to live here, who's going to work in the industries that are the biggest employers in San Francisco (hint: It's not tech)? Tourism is this city's greatest economic engine, and jobs in the hospitality industry don't pay enough for housing in the city that depends on it.

That's a dilemma we all ought to be talking about -- and Rick Perry trying to get businesses to go to Texas is not.

 

Comments

I know a few people who are moving. Not necessarily to Texas, but away from California. An accountant friend of mine in San Francisco told me his day is filled meeting with high net worth clients looking to move away.

Posted by The Commish on Feb. 14, 2013 @ 11:21 am

Where are they moving to? People move in and out all the time, but I can pretty much guarantee you that these high net worth clients aren't moving to Nebraska, or Mississippi. They're probably moving to states where people want to live -maybe New York, maybe Massachussetts. And somewhere in New York, there's another Commish with another accountant friend whose days are filled with high net worth clients looking to move out of New York... and into California.

Point is, if you're rich enough to afford to live anywhere, you're going to live where you want to live. That's why high tax California has always attracted lots of business. Rich people like to live where the weather is nice, where there are cutting edge restaurants, where things are pretty, and there are lots of other people around (especially highly educated people who they might need to make their businesses work). And they'll grumble about the taxes, and they'll do everything in their power to bribe and pressure the government into lowering taxes or giving them special breaks. But in the end, even if government doesn't comply, they'll whine and they'll grumble, but they'll still come here/stay here. And if they don't, there will be plenty of others to take their place and take advantage of the business opportunities here.

Because if you're rich, you're going to move to places where people generally like to live. And places where people generally like to live tend to be high tax places. And the two are not coincidental.

Posted by Greg on Feb. 16, 2013 @ 10:17 am

The aforementioned accountant friend said Nevada (Incline Village), Austin, TX, Seattle, WA and Wyoming (Jackson Hole) were the locales most of his clients were asking about.

You're right that weather, workforce, and culture play a big role in location decisions. As do family ties -- and many rich people are tied to their job and can't just move. But there is a critical mass of high net worth people who travel a lot and don't have to live here. If they decide to pull up stakes, a lot of tax revenue goes out the door because California is so reliant on the taxes of a small population of high income earners.

Posted by The Commish on Feb. 18, 2013 @ 11:52 am

internet work. I can therefore work from anywhere, and can travel to CA whenever I want without being tax resident here.

More HNWI workers are becoming mobile

Posted by Guest on Feb. 18, 2013 @ 2:57 pm

Record numbers of luxury condo permits from a sketchy mayor.

Posted by Guest on Feb. 14, 2013 @ 1:10 pm
Posted by Guest on Feb. 15, 2013 @ 8:54 am

"Fact is, very few businessess anywhere make major relocation decisions because of taxes and regulations."

Tim, of course, is an expert on this subject.

That's why net population growth has largely stopped in California (except for natural increase.)

Posted by Demented, Yet Terribly, Terribly, Persistent on Feb. 14, 2013 @ 1:19 pm

The research shows that it's lower and middle income working people leaving the state since they can no longer afford the high California housing costs. Every top university in the country sends its best and brightest students to Silicon Vallley and SF to make their fortunes, but they are displacing the current residents in the process. Do they care? Of course not, they just want to make their fortune as quickly as possible.

Until we start making all large Bay Area employers pay for new housing construction for their newly transplanted employees, we can expect to see the continual migration of lower and middle income people away from the very high housing costs caused by the influx of these "knowledge-workers."

Silicon Valley has become expert at shipping lower and middle income jobs outside the US, while at the same time displacing current Bay Area residents with their local hires of high-priced labor that crowds out existing residents. It's such a nice group of folks running thse big high-tech companies. Sociopaths have never had an easier time making a killing than being a high-tech executive in today's human eat human world.

Posted by Guest on Feb. 14, 2013 @ 6:20 pm

AND the H1-B visa program, a special carve out, is bringing in South Asian tech workers, 300,000 per year, in order to drive tech wages down even further. In real terms, tech wages have lost 10-15% of their purchasing power over the past 15 years.

http://heather.cs.ucdavis.edu/h1b.html

When the poverty immigration activists can't figure out how to stand in solidarity with American tech workers to defend wage deflation, should they be surprised that tech workers return the favor and don't stand in solidarity with them?

Tech work compensation is skewed with a broader middle class base and a highly paid peak. The hit rate on IPOs is minimal but when it hits it can be big. It is one big casino crap shoot and the odds, as always, favor the house.

The current boom has less to do with profitability, few have paid back their investors, and more with loose money, QE X and such.

Posted by marcos on Feb. 14, 2013 @ 6:48 pm

Which of course they are by global standards.

Which also explains outsourcing and the devaluation of the dollar.

Eventually it will balance out, no problem.

Posted by Guest on Feb. 15, 2013 @ 8:55 am

"Until we start making all large Bay Area employers pay for new housing construction for their newly transplanted employees"

LOL. On top of paying their existing taxes, of course.

That won't drive them out of California...

Posted by Demented, Yet Terribly, Terribly, Persistent on Feb. 14, 2013 @ 7:19 pm

"Silicon Valley has become expert at shipping lower and middle income jobs outside the US, while at the same time displacing current Bay Area residents with their local hires of high-priced labor that crowds out existing residents."

Which is weird, since California is becoming relatively poorer relative to the rest of the country, not richer.

The merely affluent and middle classes are fleeing California (due to the overall cost of living, not just housing), and are being replaced by much poorer migrants migrating to El Norte. Affluent Silicon Valley techies are not a terribly important addition to California migration patterns.

Posted by Demented, Yet Terribly, Terribly, Persistent on Feb. 14, 2013 @ 7:26 pm

So Tim is in favor of massive amounts of new construction in the Bay Area?

Who knew?

Posted by Demented, Yet Terribly, Terribly, Persistent on Feb. 14, 2013 @ 1:20 pm

All we need to do is to zone the area between Hayward and Fremont along BART to San Francisco's average zoning of 45' and we can solve the regional housing problem. San Francisco need not build all of the region's housing.

Posted by marcos on Feb. 14, 2013 @ 7:48 pm

And Tim will support that?

I thought he just wanted to rant about the Ellis Act again - if you built all that suburban housing on BART lines, the argument that all SF "service workers" have to live in San Francisco (and therefore need rent control) is weakened.

After all, San Francisco is 2% of the population of the State of California, so obviously San Francisco's parochial concerns should drive State policy.

Posted by Demented, Yet Terribly, Terribly, Persistent on Feb. 14, 2013 @ 8:20 pm

The issue of inner ring urban upzoning along transit to San Francisco levels and rent control in San Francisco are orthogonal. So long as 60-odd percent of San Franciscans are renters and 1/3 or more homeowners are pro-rent control or agnostic, then rent control is not going anywhere.

Posted by marcos on Feb. 14, 2013 @ 8:50 pm

we have a very artificial situation where two parts of the Bay Area have artificially cheap rentals, and the rest of the urban area does not.

That's a very distortive anomaly. Ideally, either all the BA would have RC, or none of it.

Posted by Guest on Feb. 15, 2013 @ 9:02 am

Yes, if we start viewing the Bay Area is one big city rather than lots of balkanized fiefdoms, then the housing problem can be alleviated. Many of those who live in SF but really cannot afford it could live in area's such as you describe there.

The problem, of course, is all these peope who feel they have to live in SF because it is fashionable, but cannot really afford it. They'd have to commute by BART, but so what? Not everyone has to live in downtown Bay Area.

Posted by Guest on Feb. 15, 2013 @ 8:58 am

You're wrong, as usual. Let the inner ring upzone to SF levels around transit lines FIRST, and THEN upzone SF to slightly increased heights along with the rest of the region.

That is different than SF upzoning to highrise towers while Hayward to Fremont remains an industrial wasteland.

Posted by marcos on Feb. 15, 2013 @ 9:08 am

cannot happen as long as cities like SF practice "SF exceptionalism" and "beggar-thy-neighbor" policies against the adjacent counties which they should instead be working with.

Posted by Guest on Feb. 15, 2013 @ 9:30 am

No, it implies the same developer lobbyists attorneys and consultants turn their attention to upzoning transit equidistant cities in the inner urban ring along BART lines.

They will not do this because there is not enough money to be made. They'd prefer to quadruple their money in San Francisco than merely double it in Newark.

Posted by marcos on Feb. 15, 2013 @ 9:39 am

powers. It is routine for a jurisdiction to take from wealthier area's and give it to poorer area's. And I could support a transfer of resources from SF to Hayward..

But that cannot happen when they are both cities that compete with each other rather than co-operate with each other.

BART works because it is a Bay Area wide transit system. Ditto the major highways, bridges etc. But we do not do that for housing - it is every man for himself, and so of course it is the established, desirable areas that attract all the investment.

Posted by Guest on Feb. 15, 2013 @ 9:58 am

Yes it can. Tim Colen and his HAC could go to Newark and raise as much of a stink about housing there as they do here. There is no law preventing that, only it is an uphill battle because that would mean developers leaving profits "on the table" in San Francisco and they can't have any of that, now can they?

Posted by marcos on Feb. 15, 2013 @ 10:21 am

If the entire Bay Area was one jurisdiction, none of these problems would exist.

Posted by Guest on Feb. 15, 2013 @ 2:31 pm

"The common theme here of course is that foreigners come to the US (or London, or Geneva, or Hong Kong) or any other wealthy megapolis with their almost always ill-gotten, and untaxed gains, spend the money indiscriminately on local real estate even as the local authorities look the other way because by lifting any offer, these foreigners, while laundering illegal money, are also keeping the all important housing market afloat thus perpetuing the illusion that the domestic economic is rising. Instead all that is happening is it is attracting illegal foreign capital flows."

http://www.blacklistednews.com/Is_The_Money-Laundering_Driven_Real_Estat...

Posted by Guest on Feb. 14, 2013 @ 1:21 pm

Which owners have removed from rent control because they hate the rent control board with a passion. The lower-wage workers can commute on BART or MUNI - it's a short ride from the Excelsior or Oakland to the nicer parts of San Francisco.

Posted by Lucretia Snapples on Feb. 14, 2013 @ 2:30 pm
Posted by Eddie on Feb. 14, 2013 @ 9:55 pm

"have" to be in the NW parts of SF. But why? Excelsior and the entire southern part of SF is perfect for lower income folks.

Posted by Guest on Feb. 15, 2013 @ 9:00 am

I don't understand why there's such resistance to our lower income brothers and sisters enjoying its beauty then. Thank you Eddie. It's a great neighborhood.

Posted by Lucretia Snapples on Feb. 15, 2013 @ 11:15 am

BnB or short-term corporate, academic and tourist lets are the way to go. Throw some furniture in and you are off to the races.

Posted by Guest on Feb. 15, 2013 @ 9:03 am

There are many rental listings on Craigslist.

http://sfbay.craigslist.org/sfc/apa/

Posted by Eddie on Feb. 15, 2013 @ 9:14 am

If I get a short-term offer I like, I take it.

If there's not much biting on BnB, and I find a longer-term tenant who I like AND they're paying a full rent AND I know they will leave after not too long, that can work.

Posted by Guest on Feb. 15, 2013 @ 9:27 am

Soon only mega-corporate landlords will provide long term housing. Nice future.

Posted by Guest on Feb. 15, 2013 @ 9:53 am

The problem in SF for a small landlord is that they are much more likely to get stuck with a tenant who never moves.

If you have 100 units, or 1,000, you will always have some turnover and opportunities for rent increases. A 2-4 unit mom'n'pop deal can be bankrupted by a couple of tenants who never move and aggressively assert their "rights".

But with something like ParkMerced or Trinity, they have the critical mass, means and motives to clean out the unprofitable customers.

Posted by Guest on Feb. 15, 2013 @ 10:02 am

out vacancies at market rent (even if market rents increase faster than allowable increases under rent control,) that owner isn't very good at business.

You are describing the seeking of higher profits, not the fallacious "unprofitability" of rent control.

Go ahead. Respond with you tiresome, "That is where Mr. Ellis lies."

Posted by Eddie on Feb. 15, 2013 @ 10:23 am

much more than the big boys. That's the exact opposite of the original intent of RC, which excluded small buildings and only applied to those larger complexes.

I'd agree that not many LL's are literally bankrupted, although a lawsuit could do that. But, as you already know, it's all about optimal ROI versus other asset classes and so, yes, as tiresome as you think it might be, Ellis is the antidote to such enforced and expensive restrictions.

Posted by Guest on Feb. 15, 2013 @ 10:55 am

Rent control applied to small properties led to the wave of TIC conversions, and now, Ellis Act evictions. The Laws of Unintended Consequences are in full effect.

Posted by Guest on Feb. 15, 2013 @ 11:34 am

significant additional obstacles to condo'ing a building with more than 6 units.

Posted by Guest on Feb. 15, 2013 @ 2:32 pm
Posted by matlock on Feb. 14, 2013 @ 9:43 pm

...the issue is scale of impact. Taxes affect eveyone's behavior- people have an impulse to keep their money.

Posted by Guest on Feb. 15, 2013 @ 1:19 pm

Even if CA was to raise the top tax rate on millionaires to 20%, almost double the tax rate of every other state, there are few places where people can earn the salary and stock option opportunities available in CA. Throw in the beautiful surroundings, great weather, relaxed and varied social atmosphere, literally thousands of job opportunities for most of the college educated, proximity to the Far East where vacationing and business opportunities abound, and even the poor millionaires would be far ahead economically compared to almost every other place on earth.

They can go ahead and leave, but there will be 100 more transplants into CA to try to get the high-paying job they're leaving behind.

Posted by Guest on Feb. 15, 2013 @ 9:36 pm

Six figures here today buys less than the high five figures did here ten years ago and that is before taxes. One reason why people whine about taxes is because wages have been stagnant. Tech wages have been under attack since the mid 1990s.

Posted by marcos on Feb. 15, 2013 @ 10:07 pm

That explains outsourcing, immigration, and other factors that help even out the previous distortions. As Americans pay ourselves too much and are not competitive with India etc.

Posted by Guest on Feb. 16, 2013 @ 8:08 am

Tech wages were just right, the US labor market determined the wage, and were holding steady while inflation eroded them.

The government then gave industry a special carve out to drive wages down.

This is because government and industry alike both hate American workers.

Posted by marcos on Feb. 16, 2013 @ 8:18 am

US tech workers were overpaid relative to other nations

Posted by Guest on Feb. 16, 2013 @ 9:28 am

Are you suggesting that the standard of living in the US should drop to that of India?

Posted by marcos on Feb. 16, 2013 @ 9:50 am

that if you are overpaid versus others who can do your job, then your pay will decline or you will lose your job.

Posted by Guest on Feb. 16, 2013 @ 10:28 am

There is no argument or debate. Keep regulating and raising taxes. Texas is fine with that....in other states. Welcome y'all!

Posted by GuestTexas1 on Feb. 15, 2013 @ 8:40 pm