Million Dollar Shack: Trapped in Silicon Valley's Housing Bubble

hi I'm Michelle and this is my family we live in Silicon Valley California home to Google Facebook Apple and just about every other tech company you can think of it's a Google Kai but lately it seems like the bigger those tech companies get the less room there is for middle-class families like us remember the last housing bubble you know the one that nearly brought down the entire global economy well those prices were cheap compared to what they are today and prices just keep going up and up and up how quickly our house is selling one just sold right now that's Ken DeLeon the real estate rockstar he was named number one real estate agent in the country just a few years back you can't go far around here without seeing his name hanging on a for sale sign I think is crazy these prices might seem they're gonna probably double in the next six to ten years it might sound crazy but it's already happened in our neighborhood prices here have doubled in just the last two years now they're twice what they were at the peak of the last housing bubble in 2006 the median price on our street is around one and a half million dollars the amazing part I don't think it's going to end I think the fundamental active supply strong demand is going to drive this market forever that's not good news for families like us we're just renters trying to save for our first home I always thought I'd raise my kids in the place where I grew up once upon a time there was a handsome prince and a beautiful princess with the unicorn of course but real life's no fairy tale and now it's time to face the truth we've been priced out I feel bad for clients who are like trying to save the down payment because they're getting money they're saving as much as they can but the markets jumping 10 or 20 percent sometimes they're just barely just barely behind the market Ken's company daily on reality makes shopping for a house a luxury experience with a barista in every open house in neighborhood expeditions in this Mercedes limo bus there's another booklet that I'm going to give you that has a map of Cupertino which I personally wrote and that book has um Chinese some wins gonna win English okay I recently wrote along on a tour of Cupertino right next to the neighborhood where I grew up most of the people on the bus have lived in the Bay Area for years but there's a representative from a Chinese real estate agency along for the ride he's scoping out properties for his clients in mainland China so this house is listed for one point eight eight eight very nice Chinese numbers but it's probably going to go over two very easily back in Communist China even the wealthiest citizens can't own real estate they're only allowed a seventy year lease and homes in Beijing and Shanghai are even more expensive than they are here so cashed-up investors from China have flooded the local real estate market bidding up prices all over the Bay Area the strongest all-cash offers will be from international investors and if they're here for one week to buy a home they're not going to get let 50 or $100,000 stand in the way of getting the home that they've identified even condos in Cupertino are selling for more than a house would have cost just a few years ago Cupertino condo believe it or not has appreciated fifty five point two six percent just from January to May so Cupertino condos are hot condos like this one actually it's not too bad because there's the highway 280 you're close by but depending on which unit you get you don't hear it as much the only thing that I would say is the acoustical ceilings some people are concerned about that so with that there's about 1% to 10% a bestest house actually in there and it's not really harmful to your health unless you have kids that's throwing you know a heavy ball and it's falling down wait a minute what this small condo near the freeway with asbestos in the ceiling is listed for nine hundred and forty thousand dollars something that you guys should keep in mind is that the list price is a teaser price list last week I bid it on one that had nineteen offers and went close to three hundred and fifty thousand over asking price homes and teardown condition are selling for one point three million dollars and up you'll never guess how much of this neighborhoods gone up in the last year you're gonna be shocked seventy seven point six seven percent look at the high school nice high school right and it's not just Cupertino it's almost impossible to find a house anywhere from San Jose to San Francisco for less than a million dollars that's a 40 mile stretch the listing for this San Francisco home warned potential buyers that it was in a deteriorate of state but it sold quickly for one point two million dollars fifty percent over the asking price but for all cash this uninhabitable Palo Alto home is in a flood zone so the savvy buyers got a great deal they only paid 1.75 million a hole $50,000 under the asking price so lots of locals are cashing in and like gamblers on a winning streak they just can't resist the lure of all that easy money when people knew that this house was going on the market it kind of became cutthroat with the neighbors - well how much are you putting it on the market for how much how much did you get well well if you get that much and how much will I get things are so out of control that in our neighborhood you can barely rent a tent in someone's backyard for less than $1,000 a month no really for 46 dollars a night you get a tent in the backyard it is 8 by 9 Coleman tent with a sleeping bag a pillow a handful of wicker baskets to put your stuff in an extension cord to charge your laptop you get Wi-Fi you get a shower per day and if we happen to be cooking then you could eat with us meet John Potter his Airbnb listing got national attention and sparked a lively debate online in the end the City of Mountain View shut him down despite the high demand even though I had to stop offering it I recently got an email from some Danish man who wants to live in the tent for a month or two and he even said if someone how bids me I'm willing to book 75 days instead of 60 our daughter thinks a tent in the backyard sounds awesome can I go camping in your backyard you ever thought you could bring minds full but she'd have to book ahead John lives just around the corner from our family and his story does not bode well for renters like us only a handful of areas have any rent control laws so rent hikes and evictions are everywhere deb follingstad lived this San Francisco apartment for ten years one day she got a notice from her landlord saying that her rent was going up more than 300% from just over two thousand dollars a month to eight thousand nine hundred dollars I didn't even know how to react to it I'm like what you know it's just a joke and I like keep reading and then I was like am i security deposits going up to twelve thousand five hundred dollars she went straight to the tenants Union for help and they're shocked like they're shocked they had never seen a rent increase like that like no one had seen I mean like they passed it around the office like look at this they told her there was nothing she could do she had to either pay up or get out so she started looking for another place I was seeing studio basement studio apartments and in San Francisco that means somebody converted their basement into a studio apartment like one room no windows damp underground and the lowest I saw was something at $1,700 a month turns out that's a bargain the median rent for a one-bedroom apartment in San Francisco is now $3500 the highest in the nation want two bedrooms that'll be four thousand seven hundred dollars if you spend about a third of your income on housing like government guidelines recommend you'll need to make more than two hundred thousand dollars a year just to afford the average two-bedroom people say the main reason rents are so high is because there's a housing shortage but there are plenty of empty houses in our neighborhood I got it I think it's safe to say that nobody lives here this is like the biggest weed I've ever seen in my life oh my gosh this thing is so tall unoccupied homes are so common that locals have a name for them ghost houses over here there's trash in the driveway it's like these are old clothes closet doors I heard a rumor that this house on our street was purchased by a Chinese investor in an off-market deal I have no idea if that's true or not all I know is it's unmaintained and empty the back yard is really overgrown it's worse than the front yard with home prices going up so fast many property owners especially overseas investors don't want the bother of tenants so these houses sit permanently empty even though they could easily rent for more than $4,000 a month I would say of home spot by international investors maybe like 10 to 20 percent are never occupied it's frustrating to see all these empty houses especially since we're being told that there just isn't enough room here for people like us what are you gonna do when you grow up where are you gonna live and what are you gonna do for money I'm gonna live in a maybe an apartment building are hmm and I want to drive a yellow convertible you do and they want to be a preschool teacher do you think that everybody should be able to have a house or do you think that only very rich people should have houses I think everybody should have houses even bad people even if you're making good good salary nobody can get in without help that just doesn't exist anymore our friends Robyn Shira just had a baby they both have graduate degrees and good jobs but their only hope for getting a house is to have Shearer's parents buy one and then rent it back to them her parents are willing to spend up to two million dollars but here's the punchline even with that kind of budget it's hard to find a decent place then we're like so where the bedrooms and the agents at i upstairs there are two bedrooms so we walk upstairs it's an attic it's an attic you kind of look at it you're kind of like that's ridiculous it is just so mind-blowing but these houses are going for this much and somebody will buy it it's not like it's not gonna get sold if Robyn Shira can't find a home here there is no hope for us amazingly I'll have clients who are both husband and wife are making between a hundred to two hundred thousand dollars each in the tech industry but now that only qualifies you for a mortgage of below two million dollars which Impala means you're mainly looking at townhomes and not even a home you guys want to be on TV you do you're beautiful enough to be on TV I think I love your yellow dress it seems like everywhere I go everybody is talking about the housing crisis our neighborhood is is yeah we walk around and like wow I'm a millionaire I don't think so this is a great part of the world to live but I'm now beginning to feel that it's unsustainable to live here kiss at that cost I've been in the real estate business all my life and we're trying to get an apartment just to rent and the rents are higher than any place I've been almost in the world it's cascading through the rest of the economy because people are spending three-quarters their money on rent and healthcare and they don't have any money to spend on goods so all the businesses around here are going broke because people have no extra money if you factor in the cost of housing California has got the highest supplemental poverty rate in the country that's according to a state government report while people's disposable incomes keep shrinking the tech companies just keep getting bigger Google wants to build a series of futuristic biodomes using an army of hybrid crane robots Facebook's new digs has a nine acre rooftop garden and apples spaceship shaped headquarters is going to have room for more than 12,000 employees all under one roof it's a real problem yeah he works at Google and I work at synopsis but both are in Mountain View and it's it's hard to hire people if they're not from here because then they try to find a place to live and they can't afford it are you thinking that you might want to buy in the Bay Area buy one it's about 1 million or something like that it's a problem I think the tech companies have to figure out themselves like you keep hiring people and you pay them enough to meet the current market rate but then they get more money and then prices go up and then no one ever really gets ahead so if people who are making a lot of money but they still can't afford anything because everything just goes up it wasn't always like this the bay area used to be a middle-class utopia I know I was here before Google Facebook and even Apple my two brothers and I have the quintessential all-american childhood our mom was always around to take care of us and our dad was always home in time for dinner today two professional incomes are barely enough to pay the rent let alone save for a down payment so middle-class families like us are being forced further and further away the drive home can go up four or five hours depending on what time I leave because everyone comes in at different times but they all leave at the same time Mary Ann's a close friend of my mom she used to telecommute to her job at Yahoo but then the new CEO changed the rules so she had to start making the 90 mile commute from Fairfield all the way down to Sunnyvale every day I usually get up about 5:00 and I leave my house about 10:00 to 6:00 I work a full day and I get on a train at about 4:30 5 o'clock in the afternoon and I usually get home about 8:00 at night it's a long day one day a week she tries to ease the burden of her long commute by sleeping in my childhood bedroom Marian tried to find a new job but the best offer she got was in Mountain View so her commutes just as bad the train starts in Sacramento and it's probably 80% full and those are people that are going all the way down into Santa Clara and San Jose so I don't have it as bad as some people the u.s. census created a special category for people like Mary Ann they call them mega commuters and the Bay Area's that mega commute capital of the nation we don't have kids but for people with kids how do you spend time with your kids if you're spending all of your time on a commute sometimes if we think we just need to get out of the tech bubble all together families like ours are now fleeing California in droves heading to places like Portland Seattle Boulder and Austin places where middle-class families can still afford homes at least for now the influx of Californians is driving up housing costs they're so fast that locals are being priced out of their own market and the worst may be yet to come a recent study from UC Berkeley predicted that the exodus is not even half over are things not for profit I went to San Francisco where Mission District residents were protesting at City Hall families who've lived in the mission for generations are being forced out to make room for high paid tech workers and their luxury condos this housing problem in this was not a housing problem it's rich people coming in and taking all the stuff problem all around us in my parish all around us in our neighborhood are the signs of one of the largest displacements probably in the history of the city it's not coming because people want to move out of the neighborhood it's coming because they're being forced out really when it comes down to is greed you know we have a lot of greed so people are seeing you know $7,000 two bedroom condos being rented out so they want to get paid that too for the house housing right and that's unfair for the tenants that have been there for 30 years helping them pay off their mortgage helping them get that property you know the basic problem is this is that housing is treated as a commodity for profit rather than being treated the way it should be as a necessity for people everybody needs a place to live and everybody deserves a place to live and in the richest country in the world everybody should have a place to live today there's a vote to limit luxury condos in the mission the council hearing room was so packed supporters had to watch from an overflow room and when that room filled up they had to make even more space for everyone downstairs testimony went on for hours and hours but in the end the measure was defeated maybe it's already too late to fight maybe this is the new normal Silicon Valley has radically changed in the last 30 to 40 years and this is very clearly evident when you talk to sellers versus buyers sellers will tend to be nice people but sometimes maybe they were teachers or blue-collar workers just kind of you know as a middle-class community back then they could afford the home for $50,000 or sometimes even $12,000 but now with these staggering prices the buyers tend to be these brilliant people the vast majority of my clients have graduate degrees PhD MBA law degree you pretty much need this to be hyper educated to be able to afford this area and I would say just to quantify probably about a 20 to 30 point higher IQ score than the sellers so let's see how the other half lives I got the daily own treatment touring exclusive neighborhoods in Ken's Rolls Royce another one of Ken's tech clients just bought this place in Los Altos oh wow so this home is very contemporary we are starting to see is a lot more contemporary homes being built the Mediterraneans kind of becoming passe it's got a koi pond a built in latte maker a computer-controlled shower and a lap pool in the living room my techie clients they want to showcase they've done well in life they've made it big so they want a place to entertain and bring their clients in and this home noise showcases that cool house but I don't need any of that stuff these are European I just want a simple home where I can raise my family there's been some anger directed at techies and Sony international buyers about long-term residents being displaced from this area in the end I think Silicon Valley it's such a small little area it's inevitable that prices will rise and I think it's inevitable that those who have the most money are going to pay the premium to be as close in as possible to work so the techies who are working these amazing long hours and tend to be really brilliant great people I'm for that and just because somebody grew up in this area for a while I think that the person who is working hard at Google has more right to be here than somebody just because their parents were here and they complain they can't afford a home I would say just work harder you know get more education as my advice to them maybe Ken's right maybe there isn't a place for people like us anymore but I can't help holding on a little longer hoping I can do something anything to stop the bay area I love from disappearing forever

Channel: Michelle Joyce

Views: 1,815,209

Rating: 4.4669127 out of 5

Keywords: Silicon Valley, housing bubble, California, san francisco, San Francisco Bay Area (Administrative Division), Economic Bubble (Literature Subject), middle class, priced out, United States Housing Bubble (Literature Subject), House (Industry), Real Estate (TV Genre), evictions, renters

Id: SBjXUBMkkE8

Length: 23min 8sec (1388 seconds)

Published: Mon Oct 19 2015

Reddit Comments

[u/bardeg]

Just moved from S.F. and it's getting really crazy. I know plenty of friends in the city making 60-80 thousand a year and they were paying about $2,100 a month for a ROOM. Not an apartment, definitely not a house, but a room in a house. Also had a (very wealthy) friend pay 3.2 million for a 3 bedroom house... no backyard, no front yard. People are no longer buying these properties to live in themselves, it's an investment for them. Buy a house/lot, turn it into 2 or 3 apartments, and price gauge it.

Honestly, I can't blame them though...they want to make money just like everyone else. If I had the money to do it, I probably would too.

Since I recently moved back to Detroit I've saved more money in 4 months than I did in 4 years in San Francisco, mainly because housing is extremely affordable here. Granted, Detroit is not San Francisco by any stretch of the imagination, but if you have no money to enjoy the place you're living in, why live there?

[u/Adam2uBer]

To be fair, Californians are doing this to markets in Oregon and Washington. It's really a domino effect and sucks for renters.

[u/B_P_G]

All those protesting hippies at the end of this need to forced (at gunpoint if necessary) into an economics classroom. The reason your housing costs so much (and why long time tenants are always getting kicked out) is because you don't let developers build any more housing. Your region's dumb restrictive policies have made it so difficult to get anything built that the only things worth taking the risk on are luxury condos. I mean nobody is going to go through all the hoops you've set up just to build some middle class apartments on a lot they just shelled out seven figures for. And then to make matters worse, after you make life hell for some guy that wants to build an apartment building you bend over like a cheap whore for Facebook or Google when they want to build a new headquarters and bring tens of thousands more people to your region. Personally I wouldn't even give a shit about any of this if the exodus from your region wasn't driving up prices elsewhere and setting us up for another economic crash.

I mean its definitely a bubble. If the real estate agent driving a Rolls Royce didn't trip you off to that I'll explain it to you now. I lived in the DC area through the last bubble and the same thing happened there. Appreciations well in excess of wage growth. Foreign buyers. Investors buying houses and letting them sit empty rather than rent them. I mean the only way that makes sense is if the appreciation rate is higher than the carrying costs. And if that's the case then its essentially an arbitrage scenario so more people borrow money and pay even more for houses and that drives the prices and appreciation more. And that appreciation draws in more investors and the spiral continues until the banks (who've been getting rich off of origination fees all this time) finally realize that the fundamentals aren't there to support this nonsense, they stop granting loans, and the whole house of cards comes crashing down.

[u/nachobill]

Not really shocking or surprising.. Silicon Valley is a modern day gold rush.

If you're not making a $100k+ tech sector salary, profit by selling up and moving elsewhere.

[u/fryersauce]

There was a certain tone of entitlement to this doc that annoyed me.

[u/robertxlongo]

I for one am tired of being priced out of the Ferrari market.

[u/Twinkie4sho]

The map at 17:42. What's wrong with the Midwest?! It's cheap to live and great! Yup, no problems here. ^{I'm so cold}

[u/[deleted]]

The take away was so defeatist. "I guess I can't have a place to live".. I mean the answer is clear.. relocate out of the area to some place you can afford to raise your family. The bay area isn't' the entire united states.

[u/TheOliphant]

They were walking around my old neighborhood and caltrain station. They interviewed people at our favorite restaurant.

Yes, we were priced out.