San Francisco’s Housing: Where Does It Go From Here?

The price of housing in San Francisco has skyrocketed. A San Francisco-based real estate agency, Paragon, found that the median housing price in San Francisco has risen over $200,000 since the end of 2017 to October 2018. This is not a new development, as housing in this area has been extremely volatile, rapidly increasing for years. This increase coincides with the growing technology sector of San Francisco, based around Silicon Valley. With this influx of people (the majority of whom have high paying jobs) comes growing demand for houses, raising the average price for the houses in this area. Paragon reports that the percent increase in housing prices is over twice that seen in 2017.

The average price of living in San Francisco also contributes to the growing difficulty of living in this area. Business Insider reports that the average price of living in San Francisco is 64 percent higher than the mean for other U.S. cities. This is due to a variety of factors, including price of transportation, food, and health care. Although the Bay Area is known to have some of the finest restaurants and attractions in the world, even eating at lower quality restaurants is expensive. The combination of high housing prices and cost of living contributes to the growing anxiety towards attempting to live in the bay area.

People working in the Bay Area are finding it increasingly difficult to justify living there because of such high prices. Job creation by new and expanding tech companies has been the driving force in enticing people to move to the area. These companies include tech giants such as Google and Apple as well as hundreds of startups striving to get their piece of the pie. Job offers from these companies are extremely desirable, as they are usually high paying and can lead to copious opportunities. However, the difficulty in securing housing has taken a toll on this area’s expansion rate. As prices increase, the opportunity cost of living in San Francisco may start to have a much larger impact on the number of people who choose to work there as opposed to other areas.

We could be witnessing the creation of a bubble within this specific housing market. The increase in housing prices may seem as if it is ever increasing, but it could soon hit a tipping point. Forbes reports that the average housing price versus the average income is up to a staggering 32 percent. This is well above the accepted 15 percent threshold for this market to be classified as over-pricing. This could be the first sign that the pricing may be out-pacing the growing job market. If this is true, it could mean that the market could be headed for collapse. The trend of increasing housing prices and the speculation that they will continue to increase could widen the gap between the price of homes and the actual value they possess.

Anyone deciding on whether to invest in this market may be taking a gamble. While investing in the housing market may seem like an easy way to make money quickly, any long-term investments come with its own set of risks. The current trend is showing prices continuing to rise, but the market is still considered to be extremely unstable, and if the presumed bubble were to burst it could leave investors with major losses on their investments.

Another possible worry for anyone looking to invest in Silicon Valley is that the growth of housing has not kept up with the growth of jobs. The Silicon Valley Leadership Group’s data shows that the amount of payroll jobs increased 29 percent from 2010 to 2016, while housing options only increased 4 percent. This means that even though there are jobs available, it is becoming more difficult to attract the most qualified workers to Silicon Valley versus other areas that may have opportunities and less expensive housing. This could create a compounding effect that could prove to be disastrous for the region. If Silicon Valley companies fail to continue attracting the highest quality workers, growth in the technology industry could shift to different geographical areas. Prices in housing would then drop significantly due to less economic growth, and thus, it would be a sizable investment loss to asset-owners in the housing market in San Francisco.

Technological growth has started to move away from Silicon Valley. Other cities with relatively cheaper cost of living like Grand Rapids and Orlando are starting to draw the attention of new technology businesses and those looking to expand. This could lead to a steady flow of jobs being redirected to less centralized areas.

As it stands, investing in Silicon Valley may be a risky choice. With the possibility of a bubble in the housing market about to pop, we could soon see fundamental change in the the location of the future tech giants. The future might lie in cities that have yet to establish themselves as major technology hubs. Housing prices are likely to start rising in these areas as new jobs are created, and investments in these developing markets is likely the smarter long term choice.