San Francisco Is Preparing for Life After This Tech Boom
bloomberg.comHonestly, at this point it's too late to start "preparing" for a pop. I'm dubious the city can come up with 6 years of money to ride out any kind of economic turmoil without great pain.
Individuals can simply move to a better and cheaper location. There's many more mature and cheaper tech hubs now than there were in 2007. The city is stuck with itself and its tax liabilities. And in a place where you can't cut down a tree without posting 90 days notice, good luck rolling back some of that spending.
I was in one of the so called "low cost tech hubs" of Dallas/Austin in 2008 during the recession. Anecdotal, but people in tech were doing a lot worse than in SV due to lack of jobs. If you were a reasonably good engineer in SV, you kept your job or at worse got a job at a lower salary in SV, while in Dallas/Austin people were losing jobs outright and unemployed for months since there weren't enough companies around.
This may have changed 8 years on, but I'm skeptical from what I hear from friends and acquaintances in Texas. From an R&D operational point of view, you cannot just up and move all major operations from SV to <insert any tech hub> on a whim. It may work for a 10 person startup, not for a company with thousands or even hundreds of employees.
My anecdotal observation about the size of companies moving to Texas is different. My neighbor just moved his company of three hundred employees to Austin. Another neighbor's company, Dimensional Fund Advisors relocated to Austin, about 1000 employees. On my small street (10 families), half work for or run companies that moved operations to Austin. Toyota just moved to a suburb of Dallas, 4000 employees. The operational cost savings are substantial.
The specific suburb Toyota moved to, Plano (75093), is notable because it is the home of many large companies, tech included. Companies like PepsiCo/Frito-Lay, Gearbox, and UGS are headquartered there alongside large offices for companies such as HP and various financial institutions. Plano is an upper-middle to upper class suburb of Dallas where housing for families is far more accessible than inside of Dallas itself. Whether this suburb-based expansion model can apply to other tech hubs in different states is debatable, but the pattern is still worth noting.
By the way, the proper term for something like Plano is an "edge city" [0]. It's a suburb that's managed to grow enough of its own industry that residents can both live and work here without having to commute to the city.
Personally, I love it. I have a very cheap cost of living (paying $1 per sq. ft. means you're being gouged here), a spacious home in an area with no noise, and a short commute all at the same time. Also, since we have so much tech industry here bringing a lot of H1-B workers and other diverse employees (plus a major tech university that hosts a large number of international students), there's been a huge boom in good ethnic food here. Dallas is kinda the opposite of most other cities: where other cities have white flight suburbs and a diverse urban core, Dallas has huge concentrations of Chinese, Indian, and Vietnamese people (among many, many other ethnicities) in the suburbs, while the city is full of white hipsters who think living in a tiny loft is cool. As such, you find the best food in the suburbs.
Plano is not what I would describe as upper class. There are definitely areas surrounding Plano that are, but they are very small pockets.
Yup, but these aren't "tech" companies. These are traditional manufacturing, finance, insurance (I've heard about State Farm moving to Richardson, TX) etc.
Apart from AMD (when it was on the brink) moving it's HQ to Austin from Sunnyvale, I can't think of any other "tech" company moving major operations from SV to elsewhere.
According to the SF Chronicle[1], over 2 dozen tech companies moved from the Bay Area to Austin since 2014.
http://www.sfchronicle.com/business/article/Tech-pipeline-to...
Does it provide names? I'm curious, but that article is behind a paywall.
It provides 2 names, both of which I hadn't heard of, but they were B2B data providers, which is a space that I regularly find companies I have never heard of before.
Makes sense. Texas is very big on B2B.
The Dallas area is filled with companies that make nothing but B2B telecom and UC solutions.
Shouldn't it be easier to move tech companies than manufacturing companies?
Technically, it's trivial to manufacture carpet anywhere you want -- but 85% of all US-made carpets are manufactured in Dalton, Georgia. Likewise, theoretically it's easy to develop software from anywhere (or many anywheres), but in practice you will benefit from the secondary effects of locating in a major tech hub -- or even a minor one. Some of this has to do with ease of recruitment of qualified candidates, but also the network effects of having a large number of tech companies and groups interacting with each other, leading to an overall improvement in capabilities and quality. Finally, funding is a key controller; in the Bay Area, funding can be as simple as opportunistically pitching a GP during a shared UberPool, but in regions without mature VC and angel economies, you'll have to fight harder, and pay more, for those investments.
lol do VCs really take pool?
On paper, yes. But this argument has been around for quite a while and we haven't seen any major companies moving operations (ever after the recession). The company I worked for in Austin was a remote location and HQ was in SV. Hardly any engineering employees wanted to move to Austin, despite the fact that they were offered very generous packages. Most employees in Austin were tech support, sales, HR etc. essentially back office.
If you can convince your influential engineering employees to move, that can work. But if they don't want to move, your hands are tied.
Especially with the rise of remote working and services like Slack.
The "rise of remote working" was supposed to happen 20 years ago. We should all be working from home for a good decade now. Instead, management invented excuses like "importance of teamwork", "serendipity happening at the water cooler", etc. Another messaging app won't change that by itself.
I still haven't found a "remote" replacement for gathering around a whiteboard to work out some system design issues. Whiteboard-through-a-webcam has been mostly ok as long as everyone is almost on the same page to begin with, but it gets cumbersome as soon as anyone misunderstands anything.
It is worth noting that there actually are plenty of remote workers. Most people are presumably unaware of them for two reasons:
1) People who work remotely are clustered in companies that allow remote working. If you don't work for a company that will let you work remotely then you probably don't work with any remote workers.
2) Remote workers can often choose their location so they cluster in more desirable locations which, statistically speaking, you probably do not live in.
I worked remotely for 2011-2015 within a company that had approximately 1/3 of its workforce working remotely. As I could go where I wanted I spent most of my time overseas. Spent a lot of time in SE Asia. Places like Chiang Mai in Thailand and Bali in Indonesia have no shortage of people working remotely either as an employee, freelancing or starting a business.
Obviously also anecdotal, but I live in the Valley and I don't know a single person in tech who lost their job during the recession.
Everybody just put their heads down and kept working. Nobody was recruiting, nobody was switching jobs, nobody was quitting. I know OF people who lost jobs in related fields; sales, marketing, etc, but not in technical fields.
Obviously people did lose tech jobs, I'm just saying it wasn't like a techpocalypse.
I've lived my entire life in Dallas, and I can confirm as well.
I was unemployed from February 2010 to March 2012 because of the recession. What I'd observed was that if you had skills that were in high demand in enterprise environments, like Java with J2EE/Spring/Hibernate or the .NET stack, then you'd land on your feet, but if you specialized in something less common, then you were out of luck. My experience was all specialized in Linux platform and Python development, and I only had a little over 2.5 years (since I graduated college in 2007, right before the recession hit), which meant I was in the worst case scenario.
It was tough. I applied for job after job after job, was rejected constantly, had a few interviews that never panned out. It took a terrible toll on my mental health. Eventually, I found a very young startup that needed a Linux platform person and couldn't afford someone with a lot of experience, which was what saved me from homelessness. I spent a few years there, picked up a lot more experience with Linux platform work and Python, got some Java under my belt as well, and eventually moved on to greener pastures (because they were still a skeleton-crew startup that couldn't afford to pay much when I left in late 2014).
Still, there's a lot of shortsightedness here. I'm just coming out of another, much shorter (2.5 months), unemployment spell, and I learned that I shouldn't even bother applying to Java positions anymore. My Java experience is all core Java, with no J2EE/Spring/Hibernate/other web frameworks. I spent quite a bit of time doing Java for both the above mentioned startup and the company I went to after there (hell, I was the one who put together materials educating my entire company on Java 8), but almost nobody counts it as valid experience because it doesn't involve a big web framework.
It's aggravating, really. For most companies here, it's "big enterprisey web frameworks or bust", and if you didn't get into that straight out of college, you're screwed because no employer's going to bother training you later on, because now you're considered locked into some other development track. I _want_ to broaden my experience so a few years from now, I can tell employers I've got some of everything under my belt, but here, once you're considered locked into something, that's it.
> Honestly, at this point it's too late to start "preparing" for a pop. I'm dubious the city can come up with 6 years of money to ride out any kind of economic turmoil without great pain.
So cities and states should just give up? Just because they won't be able to protect against everything doesn't mean they shouldn't be working on sound budgeting plans to offset whatever amount of pain that they have. You're right that the regulatory structure of the city makes it very difficult to make the kind of infrastructure investments truly necessary to address the issues of the city, but building up cash reserves is simply sound planning.
how about a follow up: be prepared individually to ride out economic pain. Don't be afraid to move. If you have a successful business then beware the city is going to have a keen eye on you as a potential source of income that it will badly need.
I predict the city will try and suck any profitable enterprises dry before they cut back on social spending, despite what the messaging suggests.
Sure, but that isn't mutually exclusive with the city doing its best to put together a financial emergency fund.
Has that ever happened in SF?
Does that make it mutually exclusive? Does the fact that it has never happened in SF mean that the city should just punt on even attempting any fiscal responsibility?
My point being that in the two generations of one-party rule in SF, there has never been any semblance of fiscal responsibility. I wouldn't rely on that happening now.
Again, that does not, in any way, mean that the city should not be attempting to budget somewhat responsibility. Just because you don't like how the city has been run doesn't mean they shouldn't ever try to be better
We agree exactly on what should happen. But I, as a realist and a careful observer of local political dynamics for over 20 years, see how it actually plays out.
And it's much, much worse than the local media ever report. And violations of the Brown Act (open meetings law) are constantly increasing.
It's quite an eye-opener reading an account of a public in the paper as seeing the reporter outright lie about the events and the makeup of the audience (this was easier back when city council meetings were not videoed by staff, only secretly by members of the audience).
> Individuals can simply move to a better and cheaper location.
[...]
> And in a place where you can't cut down a tree without posting 90 days notice, good luck rolling back some of that spending.
A change of the individuals in the city of the type you suggest would, quite likely, solve the later problem you point to. So the problem seems to be self-limiting.
They could always scrape some gold off the top of City Hall.
> Honestly, at this point it's too late to start "preparing" for a pop.
That's probably true, and if they do find a way to start squirreling away large amounts of money it could bring about the pop sooner and possiblle make it worse. A large contraction in government spending when things are already shaky can instigate more problems in the economy.
Former US Comptroller General David Walker has been beating this drum for decades (in the context of US fiscal concerns), to no avail.
Question for San Francisco tech workers: if there is a massive recession caused either locally (over-funded companies that don't make money going bust) or globally (China is expected to hold debt over 300% of GDP by 2020), what will you do to protect yourselves?
What languages or frameworks do you recommend learning? Which industries need engineers and are relatively insulated from economic downturns? If the Bay Area slams the brakes on growth, where will you move? What non-tech skills would you recommend brushing up on?
Perhaps most importantly: if things went bust today, how fucked would you be?
Having been through the cycle twice I'm going to tell you a secret.
You could be the greatest developer, who has honed skills in every language and still be in bad shape. What you know has NOTHING to do with your ability to survive.
You need cash on hand. A lot of it. That recommendation about three months in the bank, you should have six months or better yet a year of your current salary. If you get laid off, you better start living lean. Cut every expense you don't need to make that money last as long as possible.
You need to have a network, cause skill alone won't get you work. Its quickly going to turn into "who do you know" and "who can get you in the door". It is vital that you build and maintain these relationships NOW, cause when it hits the fan, its going to be too late.
Honestly, the down has always been good for the bay. There is a lot of "medium talent" in the bay right now, and a down market is very much going to clear all of that out.
It's always a good idea to save, but if you get fired in the US do you not get unemployment benefits?
I've been laid off in Austria before (a few years ago, the company I worked for downsized about half its workforce around ~2010) & was IIRC entitled to unemployment benefits for about half as long as I worked there (ended up finding a new job before the benefits ran out).
Unemployment benefits in California* last for 26 weeks, but the maximum benefit is $450/week, enough to cover about half the rent payment on a studio apartment in the Bay Area. Prudent workers save on their own for the possibility of unemployment.
*(corrected from U.S.)
Interesting that it's not a percentage of your wage, seeing as you pay more unemployment insurance/social security the more you earn (at least you do in Austria and Germany).
In Austria it was 55% if your net salary IIRC.
I believe it is tied to wage, but it isn't really designed to support high income earners and has a relatively low ceiling as far as software engineers are concerned.
It is a percentage of your wage, but they have pretty tight lower and upper bounds on it. Where I'm at in Ohio, it's one-half of your average weekly wage, but also constrained within $118-$435 pre-tax.
You can't really talk about unemployment benefits in the U.S. because unemployment is a state matter.
Being pedantic here, but $450/week is $1800 per month. I'm sure there are examples of studios at $3600/month, but I've seen plenty of one-bedrooms in desirable neighborhoods for less than $3600/month (based on last month's Craigslist).
True, and outside of SF you can find studios for under $2k, but unemployment won't additionally cover any living expenses beyond basically base rent.
If times were super hard, you could possibly find a room to rent for $1200 if you get really lucky, $1400-$1600 if not, then try hard to make that remaining $200-$600 cover the rest of your expenses, and good luck if you're not just single, young, able-bodied, and able to find another job in a few months.
Presumably you could also relocate temporarily to a surrounding area where it's (relatively) cheaper, and bus, drive, and soon possibly train in for anything requiring you be in the city. You should have enough free time on your hands that the time eaten by commuting isn't a problem.
Relocation typically has the question of "can you afford to live here?" This is done with a pay stub of offer letter to see if you have 3x the money on it than rent. If you are unemployed this can become rather difficult.
This says nothing of the cost of breaking a lease or the expense of moving itself. If you don't have the 3+ month savings, unemployment checks are eaten away by basic living in no time flat.
This is being said by someone who had a paycheck bounce which in turn lead to what would have been a bad check written for rent. Fortunately I had a friend who loaned me $1k for rent who banked at the same place and immediately got me in touch which another job offer.
True. I was mostly thinking of the situation where you have some money saved, and want to make it last. In that case, showing a bank account balance might be sufficient. You'll have to decide yourself whether you think it's worth choosing a shorter lease and breaking it or living with it if you get another job, or trying to secure a month-to month deal for the short term.
If you don't have enough money saved to even do this, I'm not sure staying in an apartment in SF is a good idea anyway. Probably better to couch-surf if you can swing it, unless you are fairly sure of a new job very quickly. Anything to reduce the outlay on inflated SF housing costs, keeping in mind that if you range far enough, you might find a small studio for half or third the SF cost.
also if SHTF property prices will drop.
there is a dynamic there when once the foreclosure numbers mount, the rental prices stay stable because all those ppl who lose their jobs/houses need to live somewhere but in SF's case the real estate market including the rentals is so over-heated any major hiccup will cause them to drop significantly before stabilizing.
Unlikely to see a big drop unless something really catastrophic happens. Relatively small drop in 08.
From the numbers I've seen the 2008-2012 drop was in a 30% range, considering the ~1 mil average price right now we're talking a 300K drop in value...
Wow, you're right. 27%. Versus 10% and 11% for DotCom and 90s recession respectively. That's a lot!
"typically lasting 4 years" but 6 for 08 to return to pre-downturn levels. Rough. Glad I'm mostly cash right now though we have been looking...
Rents didn't really drop but housing prices did. The closer to SF you are, the less they dropped. Housing prices had recovered by 2012-ish in SF proper, but are probably STILL not back to where they were in places like Morgan Hill.
OTOH I was paying 1385 for a one bedroom apartment in San Carlos just a couple of years ago.
I can't find it right now, but some SF neighborhoods did see rents drop. I remember seeing data for Noe Valley. Basically tenants went to their landlord and said "Give me a rent reduction or I'll move to this apartment that's nicer and cheaper".
That's interesting, but it makes sense -- SF is a city of primarily renters. In more suburban/residential areas, rents went up because people lose their houses and needed somewhere to live. Supply went down, because there was more demand for rental stock but the foreclosed houses largely sat vacant for months or years.
(I actually did 'negotiate' a rent decrease in ~2008 in Santa Clara; they wanted $150/mo MORE, so I pointed to a unit on their website that was $120/mo LESS, and said I wanted to rent that one instead. Needless to say, they made me an offer to stay put, thank god.. having to move across a parking lot would have been miserable. But of course rents in general took off despite this small blip)
You do get unemployment as well in the states in a LOT of cases, but it never lasts that long. However if your a "contractor" your not paying into the system so no pay out.
Excellent answer, thank you.
Having worked through the 2001 crash and the 2008 crash... it's nothing to do with being a tech worker.
If anything it means that you'll be able to bounce back quicker than others because your skills will be in demand (just not as much as before and it'll take a while to get back to a hiring market).
What will help is financial planning: 3-6 months of expenses in the bank is a good guide. Know how to live frugally, etc.
The recession that happens next is likely to not be as big as 2008 (or as dramatic) but it will eventually happen. You're already seeing the economy and job market slow down due to that + election season nerves.
But it's the same for tech workers as it is for anyone else: financial planning. Not in the "where to invest" sense that HN loves but "how much do you have in liquid assets" and by liquid I mean "if rent is due in a few days can you access that money by then?" kind of liquid.
The most important thing to keep in mind during a downturn is who is funding your company and what is your burn rate? If you're running off revenues and profitable and your market isn't other startups or a bubble area like residential real estate in 2008, you have a good change of making it through. Same goes for if your company is funded by a patient angel investor with lots of money to spare. Otherwise, things probably aren't going to go so well.
Cultivating personal connections is the most important thing. Keep in touch with your former coworkers who have moved on to other companies. Many jobs are filled by referrals.
I should also point out that after the 2008 crash, none of my tech worker friends were unemployed. That's anecdotal, but whatever. Tech was the first industry to bounce back, and the larger companies didn't lay many people off.
Even if the tech bubble bursts, instead of slowly deflating as I expect it to, I think tech workers will still be the most recession-proof demographic around here.
I have a masters in CS so I always assumed if something happened in the field I could try to make it in some other stem related field. But more than likely I'd be screwed, since everyone else would be attempting the same thing.
Someone somewhere will always need your skills.
why?
It is easy enough to imagine that the current funding climate in the Bay Area is unsustainable.
It is much harder to imagine a world which no longer wants software built.
> what will you do to protect yourselves?
> What non-tech skills would you recommend brushing up on?
Simple for me - have your clients be based outside of SV, and focus on clients who actually make profits, not those who have funding.
I've got a huge housing payment now, but I've also got money in the bank.
I'm not worried at all. 2008 was nothing but a blip. As I mentioned elsewhere, I don't personally know any tech workers in the valley who lost their jobs. People always freak out for no reason.
However, because hiring was down, if you WERE one of the unlucky 5 or 10%, it takes a longer time to find a job.
Save some cash. There's plenty of time to learn new skills while you're unemployed.
Farming - people still need to eat
That chart showing a big bump after 2000 and 2008 was intriguing, I was curious to know how it looked before 1996 Does anyone knows what "bubble" happened in 1990 in San Francisco?
https://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_...
There was a nationwide recession in the United States in the early '90s. The chart reflects that.
And FYI, technology was not a significant factor in the economy of the City of San Francisco at that time.
> technology was not a significant factor in the economy of the City of San Francisco at that time
So was the 80's tech boom in Silicon Valley limited to the valley proper?
For most of Silicon Valley's history, the technology industry was generally no farther north than Menlo Park on the Peninsula, and southern Fremont in the east, with the occasional exception (Electronic Arts in San Mateo, Oracle in Redwood Shores). There were the beginnings of a tech presence in SOMA in the dot-com era, but it died when the bubble burst. Tech didn't start to come back to the City until 2006-07 or so.
There were cuts in defense spending after the end of the Cold War.
Presumably, reconstruction after the earthquake in 1989.
Actually the 89 earthquake did a surprisingly small amount of damage to the bay area (in SF primarily the marina and small but significant damage to the bay bridge; outside it was the cypress structure and much of downtown santa cruz).
In addition, the reconstruction was spread over a long period (for example they haven't finished with the bay bridge).
> Actually the 89 earthquake did a surprisingly small amount of damage to the bay area (in SF primarily the marina and small but significant damage to the bay bridge
Also, SR-480, I-280, and US 101 all saw significant damage and closures requiring reconstruction and redesign (either of the freeway itself, or of transport networks because, as in the case of SR-480, the freeway was just deleted entirely after the damage.)
> In addition, the reconstruction was spread over a long period (for example they haven't finished with the bay bridge).
The Bay Bridge damage from the earthquake was repaired fairly quickly; the seismic retrofit to make it better able to survive future earthquakes (and, more specifically, the replacement of the Eastern Span as part of that retrofit) has taken longer.
Yep. My point was that none of those was responsible for any sort of economic "uplift" (in quotes because of the broken windows fallacy).
BTW after writing that comment I just walked by the old chemistry building on the Stanford campus which was closed by the earthquake (I was actually in that building a earlier that summer). They've finally started work on fixing it -- more than a quarter century after it was declared unsafe!
> My point was that none of those was responsible for any sort of economic "uplift" (in quotes because of the broken windows fallacy).
The damage to SR-480 (the Embarcadero Freeway) might be a significant counterexample to that, since it was the earthquake damage that provide the impetus to overcome the resistance to demolishing it that had stopped that from happening two years before the earthquake, and allowed the improvements in that area that took place once the freeway was removed.
Interestingly, Seattle has a very similar curve throughout this time period.
edit: several major cities actually
There was a major market crash and recession around 1987. The economy stumbled for about 5 years while Bush Sr. was president. That is a primary reason Clinton was elected in 1992. I don't know the primary industry that crashed (like tech 2000 and financial 2008), but the rise in unemployment is likely the aftermath of that recessionary period.
> I don't know the primary industry that crashed...
It depends upon who you ask, but mainstream consensus [1] is financial industry, specifically via the then-newly-common program trading. The supposed resultant market crash is usually identified in mainstream analysis as the incipient early 1990s recession.
US residents at the time possibly more commonly associated the market crash and recession with the savings and loan (aka "S&L") crisis. [3] Significant portions of the Finance, Insurance, and Real Estate (FIRE) industries [4] were adversely affected at the time, though IMHO the resultant regulatory response only acted as a perverse incentive to further financialize the US economy.
[1] https://en.wikipedia.org/wiki/Black_Monday_%281987%29#Causes
[2] https://en.wikipedia.org/wiki/Early_1990s_recession
"States are also readying for bad times by squirreling away more cash in reserves."
Now both huge companies and local governments are hoarding cash. Which is problematic for the economy as a whole.
"Now both huge companies and local governments are hoarding cash. Which is problematic for the economy as a whole."
Only if you insist on maintaining aggregate demand.
Which we all probably do - certainly I do.
But it bothers me that people trot out the "accounting identity" that public and private sector output cannot simultaneously fall - typically in a very condescending, mansplaining fashion - without acknowledging that they can absolutely be disconnected, provided you're willing to accept a drop in aggregate demand (and, presumably, deflation, hurt feelings, etc.)
Please don't use sexist language on HN.
Yep, Europe, I mean Greece, Spain and Portugal, has showed us that austerity definitely damage the economy.
Austerity != hoarding cash.
Greece, Spain and Portugal haven't shown us that austerity damaged the economy. _Their economies were already bleeding_ but they were throwing enough money & debt at the problem to cover it up. Austerity is the fix that they needed to do eventually, and it's better that they did it now rather than later.
Cash is in the bank being lent out to others. This is good for the economy as a whole.
Saving for a rainy day is prudent fiscal policy.
"Cash is in the bank being lent out to others."
Yes, in your textbook it is. In reality, in 2016, banks are hoarding that cash outright, or "lending" it to other banks, etc., for near-zero returns.
Considering many central banks are moving towards zero or negative interest rates there's a significant cost to hoarding cash. But as you say it is a good strategy for individuals, it's not a good universal strategy - see https://en.wikipedia.org/wiki/Paradox_of_thrift
I think by definition, you can't 'brace' for 'a bubble'. That's the central part of the metaphor that the bubble 'bursts' as a sudden event at a time you can't prepare for. The act of anticipating for a 'bubble' and preparing for it is the exact kind of behaviour that prevents it from happening.
You can't predict when the bubble will occur, but you can certainly brace for it. Hiring contingent workforces that can be immediately let go if tax receipts fall, not entering into any long term contracts with large penalties, based on the belief you will always have a large population, and, most, most importantly, don't enter into long term unfunded liabilities with the hope/prayer/belief that times will always be good, and that the future will be able to pay for the present. Unfunded Pension Liabilities (among many other things) crippled Detroit, Puerto Rico, and, very soon, Chicago.
Also - for large infrastructure investments, certainly issue bonds for things like water, sewer, hospital, basic infrastructure - but don't get too crazy/extravagant with Sport Stadiums, or overly complex derivative hedges that blow up if the economy tanks.
If you really want such nice toys for your city, consider saving for them rather than going into debt.
Municipal finances are not like Federal (or heck, even state) finances - you really do have to balance your books.
Just because you can't predict the exact moment of recession doesn't mean you can't prepare for it. Plenty of events in life are inevitable but lacking a calendar invite.
Bracing for a bubble is just being wise with money. You know roughly what the lows look like, you know what the highs look like, so you pick somewhere in the middle to sustain your life (city) and save the surplus for the lows.
To an extent you can't totally prepare for a massive event (everyone leaves SF; all jobs disappear overnight, now what?).
That merely shows the problem with calling every tech boom a "bubble". Technology has been boom-and-bust in the Bay Area for decades, but there was only one bubble: 1996-2000. There have been technology booms since, but there have been no "bubbles" in the Bay Area tech economy since March, 2000.
Recessions, while painful, are much less extreme than bubble-bursts, and can (and should) be planned for.
To echo the other posters, the entire insurance industry is predicated on the concept that you can plan for something bad happening, even if you don't know the date.
You can invest in infrastructure.
This is wise, just like guv Brown is being prudent with respect to tax receipts while his colleagues insist he's bring stingy in a time of plenty. Apparently, those people are unaware of the hole Grey Davis dug while riding high on the wave of late nineties tax receipts.
Except SF ran a deficit of 100M last year despite record revenue. Youd never know they have billions more than just s few years ago, the streets are in a shameful condition, homeless situation is quite bad, and public transit is a joke. They're doing a terrible job of managing their money.
It’s not the money that’s terribly managed. And it’s our money, not theirs.
It’s that we have an awful degree of citizen participation, being directed with a dumb combination of social feel-good and suspicion of authority. So, a couple days ago, we had Proposition B, which forbids the City of San Francisco from spending less than $64 million of the general fund on parks, gradually increasing to $89 million, even if the city is running a $100 million deficit, in addition to a percentage of property tax, with additional committees and reports. This proposition passed overwhelmingly. Along with every other proposition that suggested increased taxes.
It’s hard to run a city effectively when you’re being hamstrung by all sorts of requirements and interminable committees.
Streets could be in better condition if fiber and sewers could be coordinated with each other and with other street maintenance.
Homeless could be better if we acted like we were a state-level region with state-level decision-making, so let’s build housing for the people already, and not a cluster of democracies squabbling over a homeowner’s right to what’s in the sky over a several-square-mile region.
Public transit… It reminds me of the James Madison quotation, “If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.” Sadly, public transit is run by men (and women), not angels, so there’s all sorts of possibilities for corruption and selfish decisions. From requirements designed for the benefit of campaign contributors, to iron-clad income security for people whose jobs should have been automated away. It’s a mess, and attempts to fix it with regulations tend to block sensible decisions and cause loopholes.
In summary, it’s not the money that is mismanaged. It is the people.
Some of those things are not entirely within SF's power to fix, though, or are complex beyond belief to solve.
I don't think anyone has good solutions for homelessness, for example, and transit is complicated by the fact that all the neighboring counties have to agree to most changes/upgrades to transit systems, and some have a history of vetoing or refusing to participate.
> The unemployment rate was 3.1 percent in April, the lowest since 2000, and home values are at a median of $1.1 million, the largest among the 50 biggest U.S. cities. Mayor Edwin Lee on May 31 released a record $9.6 billion budget proposal.
What goes up must come down. Here's my completely opinionated ideas of how an individual in San Francisco can ride out the economic change:
1. Sell your home.
2. Have a 6 month nest egg saved up.
3. Have an up-to-date resume.
The "sell your home" part is not valid in the near-zero interest rate world, which who knows how long that will last.
Where do you live after you sell your home? My home is "worth" over 50% more than I paid for it, but if I had to rent, I'd end up paying nearly double what I pay in mortgage.
If the market turns suddenly your home is not worth 50% more than you paid for it and renting looks a lot nicer! (In that situation rents will come down too.)
I don't know. Seemed like rent bumped up after the 2008 recession, because a bunch of people foreclosed on their homes and were forced to start renting who otherwise wouldn't. It hasn't really dropped much at all. http://www.statista.com/statistics/200223/median-apartment-r...
But if the market turns suddenly it's too late to sell.
So do I sell today and "hope" that the market will tank and rents will soon drop lower than my mortgage and that I don't eat up most of the profit from selling in extra rent payments?
Yes, that's what the OP suggested. 50% gain is pretty big and a capital gain from a home is nicely tax advantaged. You could also look to move somewhere else, that 50% gain is probably enough to buy a place outright in many other places.
Of course, I lose around 8 - 10% of the home selling price to selling expenses, and pay 20% capital gains taxes on the profit, so that 50% gain is not as large as it sounds.
And sure, I could quit my job, sell the house, do a 1031 exchange and buy in a cheaper area to reduce the tax burden, but purposely quitting my well paying job and moving to somewhere that jobs are less plentiful sounds like a bad idea if I'm worried that we're facing a recession. Not to mention how disruptive it is to my family: "Hey honey, we're both going to quit our jobs and move the kids to a new school because the bubble might be bursting".
Recommending that people homes now and move out just sounds like trying to time the market, and may not leave them any better off. Silicon Valley still still have a lot of jobs even after an economic downturn, some small town here homes are cheap may not.
> Of course, I lose around 8 - 10% of the home selling price to selling expenses, and pay 20% capital gains taxes on the profit, so that 50% gain is not as large as it sounds.
Put it up for more than you think it's worth yourself (no agent) and see what happens, maybe you'll get lucky! As for the cap gains, that's the best part of a house:
https://www.irs.gov/taxtopics/tc701.html
> If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse.
It's a really good deal. You can even hedge and buy S&P index shares (SPY) with the proceeds of your house. If you're wrong and things continue going great you'll make a killing on the stock. If not it's a lot easier to get out of than the house!
But the interest rates can stay low indefinitely; the Fed is determined to keep it that way because of how many people depend on home value. Even moving short-term rates to 0.25% is met with shock.
As far as I understand, the Fed only has limited control over the interest rates if they want to maintain a functioning economy.
For example, if inflation starts picking up, rates will have to come up to tamper it. Otherwise you get runaway inflation.
If inflation increases in other countries, then the US rate will follow, otherwise our dollar will take a huge hit due to the interest rate/exchange relationship.
> the Fed is determined to keep it that way because of how many people depend on home value.
No, the main two things that the Fed manages with monetary policy (and they tend to be balanced against each other) are inflation and employment. Low rates are used to spur employment at the cost of risking inflation, high rates are used to constrain inflation at the risk of harming employment.
I know what the textbook says; I'm talking about the political realities of pursuing a policy that would cause a precipitous value in people's homes.
True, the Fed is nominally Independent, and Immune to Political Influences, not in practice it's not. The bankers that contribute to its policies also have to worry about mortgages going underwater from a return to historically normal rates.
> I know what the textbook says; I'm talking about the political realities of pursuing a policy that would cause a precipitous value in people's homes.
The political reality is that the Fed has fairly consistently -- and reasonably predictably by experts looking at the same signals that the Fed overtly claims to watch -- made rate decisions as one would expect considering the combination of employment-related and inflation-related considerations they consider under the "textbook" case. So, conspiracy theories about home prices are unnecessary.
> True, the Fed is nominally Independent, and Immune to Political Influences, not in practice it's not.
I won't argue that the Fed is someone subject to political influences, OTOH, those strongly militate both for working to promote employment and working to constrain inflation, which are also the Feds overt mandates.
> The bankers that contribute to its policies also have to worry about mortgages going underwater from a return to historically normal rates.
After the 2009 crisis, the wave of defaults that occurred then, and the tighter lending policies that banks have taken since, there's not a huge risk there.
The last time unemployment was this low [1], the Fed had rates near 5%, and yet raising them to 0.25% is considered shocking, even with inflation very low -- almost nothing over 2015 [2]. How would you explain the reticence?
[1] http://data.bls.gov/timeseries/LNS14000000
[2] http://inflationdata.com/Inflation/Inflation_Rate/Historical...
> The last time unemployment was this low, the Fed had rates near 5%
Well, leaving aside looking at current rates rather than leading indicators (since, while problematic, its a lot more convenient), the time you were referencing with a ~5% Fed funds rate also had inflation rates near 5%, not hovering around 1% (like now) after more than a year of being substantially below 1%.
> and yet raising them to 0.25% is considered shocking, even with inflation very low
The Fed raises rates to control inflation. With low inflation, you expect low rates. It also lowers rates to improve employment, but with virtually no inflation, there's little reason for tightening the money supply.
The last time inflation was this low this long -- in the mid 1950s -- the effective Fed Funds rate was also quite low, though a bit higher than now (around 1%, rather than 0.37% now).
>The last time inflation was this low this long -- in the mid 1950s -- the effective Fed Funds rate was also quite low, though a bit higher than now (around 1%, rather than 0.37% now).
So then you agree that returning to historic real rates would require the Fed to do something currently unthinkable -- ~1% rather than 0.25%?
Edit: Also consider what a shift of 0.75% does on the implied price of a house when mortgage rates are at 3.75%:
http://www.bankrate.com/finance/mortgages/current-interest-r...
> So then you agree that returning to historic real rates would require the Fed to do something currently unthinkable -- ~1% rather than 0.25%?
No, for three reasons.
(1) A limited sample problem; the present circumstances are nearly historically unprecedented. When the only post-WWII comparable in inflation terms is in the mid-1950s (and, conveniently, its also very roughly comparable in at least headline unemployment terms, though other employment measures may not look similar), and that's deep in the Bretton Woods period which puts entirely different constraints on the effects of (and thus the calculus feeding in to) monetary policy, you've really got no good comparison in history.
(2) The current effective federal funds rates (what was around 1% in the 1950s period with similar inflation) is 0.37%, not 0.25% (The current target rate is 0.25%-0.50%, and the actual effective rate happens to be right in the center of that target range.)
(3) Prior to the recent jobs report, which showed gains at a slower rate than anticipated, most predictions were for a July increase in the target rate, possibly followed by another in September. After the recent jobs report, predictions are mixed, with an increase by September seeming commonly predicted, with some possibility of a July increase still on the table. Raising the target from its current level (which, again, isn't 0.25%, but 0.25%-0.50%) isn't "unthinkable", in fact, it seems to be what everyone is thinking.
Why? I don't get it.
EDIT: Ah, the parent edited their comment to clarify. I see what they meant now.
I think the rationale is: You don't want to be holding an asset who's value is predicated on a very low interest rate loan. If mortgage interest rates go up by a factor of two, housing affordability will come down by a factor of two (assuming an interest only loan). Better to sell now, pocket the money, then buy back in when prices are lower.
Isn't that in essence trying to time the market?
On the other hand it is buying low and selling high. It's a fool's errand to try and sell at the exact top (or buy at the exact bottom), but if you're already up nicely you have done the hard part.
Sure, but you're still trying to time the market.
Yes you are trying to time the market but interest rates cannot go any lower, literally.
In hindsight, it will have looked obvious.
Actually, they can go negative like Japan. Which I guess would push asset prices even higher?
Sell while the market is hot and move somewhere else. Take up to 6 months to find the new home / job. At least, that's what I think the above implies.
In fact, if you sell and want to realize gains on your home you pretty much have to move or at least downgrade, or else you and your buyer's profits cancel each other out.
San Francisco is one of the few cities in the US where half the inhabitants wish its chief industry would stumble and the bubble burst.
the next tech bubble bursting in the u.s. will see the reformulation of outsourcing to india and china as the 'solution' to the next tech recovery.
the great depression lasted 12 years from 29 to world war 2.
every time the tech bubble has popped since 99 the fed lowered interest rates and increased money supply. i dont think that one will work so easily after the next bubble because interest rates will have to go negative and money supply has EXPLODED in the last 8 years.
the fed doesn't like high gold or oil prices so how much more can they increase money supply after the next bubble busts?
the fed has taken 25 years post volcker to paint itself into this corner. the results of the next bubble bursting will be multi-decade cycle in nature meaning a bigger bustup than any of the 2008, 2004 , 99 bubbles.
Sort of crazy to me that the budget for SF is $9B. Boston, which is around 200k people smaller, has a budget of <3B, which seems like a huge gap. What kind of services does SF provide that a pretty comparable city like Boston doesn't?
In the spirit of teaching a person to fish, instead of handing a fish:
http://budget.data.cityofboston.gov/#/ http://sfmayor.org/ftp/uploadedfiles/mayor/budget/SF_Budget_... (see page 11)
One example, public safety is almost 3 times more expensive. It looks like social services is also about 3 times higher. On a per capita basis, it looks like SF actually pays less for transportation. But since the budgets are broken down by different categories, it's kind of hard to tell. I'd need to do more research.
Very nice to see they have a rainy day fund. Watching the city government here they really believe the TV show title "It's Always Sunny in Philadelphia" Wish governments were paying attention to past history
Jerry Brown's been very good about this for CA as a whole.
SF doesn't have to worry a lot because they're already insulating themselves from tech by not bothering to tax Twitter or other big tech companies in the first place :)
Implicit in this "life after" plan is that things are going okay in San Francisco right now, which is a pretty interesting conclusion to come to.
> Implicit in this "life after" plan is that things are going okay in San Francisco right now, which is a pretty interesting conclusion to come to.
If things were that bad, people wouldn't be willing to pay current SF real estate prices to live there, no matter what the supply of housing was like.
No one implies that. Planning to prevent things to get worse if the city is hit by a recession is not the same thing as pretending everything is fine.
I wonder how this would affect Silicon Alley?
The SF advantage is so incredibly ephemeral. Everybody wants to go there, because everybody else is there.
If that is all there is to it -- and it is -- this process can very easily go into reverse mode. SF is insanely expensive. You do not need any part of SF to write good software. It only makes your software more expensive.
Some day -- that could take quite a bit of time though -- SF will crash and burn, simply because there is no reason why it wouldn't.
It's been ephemeral for some 60 years now.
Some ephemeralities are more durable than others. Not that they cannot change.