Silicon Valley is in a real estate frenzy.
Frankly, I think the market is slowing down, but that’s just based on my
observation, which lasted a whole weekend. That’s not saying prices will come
down—just that they may not go up as fast as they have been.
The real estate market out there is and
has always been, in my experience, different. The first time I moved there, in
1976, I wanted to offer less than the listing price. The agent was shocked.
“Oh, you don’t want to insult the seller,” she said. And this attitude has
prevailed (except for the early 1990s when a recession hit the area—I wasn’t
there during the last crash, so I don’t know how prices were affected then). As
an example of how entitled Silicon Valley sellers are, there was a letter to a
real estate columnist in the July 15 San Jose Mercury News complaining that it had taken their agent three weeks
to bring them a full-price offer when their neighbors had several offers over
asking price in just a few days for an “inferior” house. Imagine! Complaining
about a full-price offer. And about those prices.
Strawberry Square, a development of 350
townhouses, is my gauge. I sold my 4 bedroom 2½ bath 1,440 square foot unit
there in 1994 for under $200K. A similar unit was for sale during our trip for
$1.2 million. It appears to have sold. These units were built in the 1970s and
priced around $30,000. They were built on slabs and without air conditioning,
and while you can put air conditioning in the units, it has to be routed
through the (hot) attic and is an expensive proposition. In spite of the fact
that temperatures can get well over 100º, everyone assures buyers, “Oh, you
don’t need air conditioning,” which might have seemed reasonable at $30,000,
but for $1.2 mil?
Our host lives in a
townhouse she and her late husband bought in the 1980s for $150,000 that could
bring well over $1.5 mil today because of its location. She assured us there’s
nothing under $1 million in Silicon Valley, and I tend to believe her. Dan and
I went to a couple of open houses—one is a 4 bedroom 2 bath house on a busy
street priced at $1.7 mil. This house appears to have been redone by a flipper—on
the surface it looked great, but it was redone on the cheap; it still has the
original 1970s aluminum windows (and no air conditioning). The other open house
we went to is a 3 bedroom 2½ bath townhouse priced at $1.398 mil. One reason I
think the market is slowing down is this unit was reduced (gasp!!!) from $1.448
These houses are in
my old neighborhood, west San Jose. Prices are much higher in Sunnyvale,
Mountain View, etc.
High housing prices
are not limited to Silicon Valley. We visited a 2 bedroom 1 bath in Pacific
Grove, near Monterey, that is priced at $749,500. The house was built in 1909
and has no driveway, garage, or functional parking in front of the house. It
also needs a new sewer line. And though there’s no air conditioning, you really
don’t need it there.
We saw high prices
all over California, which begs the question—how do people manage to find a
place to live there? That’s a tough one. Some people don’t. As we were driving
on Santa Monica Boulevard in Los Angeles we saw a large homeless camp under a
freeway overpass. Our host in San Jose and I talked to a guard at Airframe
Supply while Dan was doing his business there. The guard drives two hours each way to
his job and shares an apartment with his father.
California has two
classes of people—those with homes and everyone else, and those with homes
don’t seem too interested in those without.
California is complicated. Proposition 13 was passed in 1978. It limited
property taxes to 1% of the sales price of the home. I believe taxes were
allowed to escalate at something like 2% a year, but voters can (and have)
approved add-ons (kind of like the streetcar add-ons we will soon have) and
“special” taxes can be added as well. Nevertheless, tax rates are much lower
for people who bought way back when, and those people are only going to let go
of their houses when they die. For people in the market now, even without the
add-ons and special taxes, the buyer of a million dollar house will have an
annual $10,000 tax bill.
With interest rates
going up and interest and state and local tax deductions being limited, I
wonder how sustainable this boom is, but it’s almost always wrong to bet
against California real estate.
Which brings me to
the question almost everybody asks: Don’t you wish you’d stayed?
In a word, no. As I
mentioned in my previous post, we stayed with the widow of the man who wound up
with my job after I left. I believe the job contributed in a major way to his
death. He had diabetes, and as far as I know, Company L did nothing to
accommodate his illness. He went on disability a couple of years after I left.
I visited him in 2000. He eventually lost both legs. He told me, even in that
condition, he was happier than he’d ever been at Company L. That’s how much
that job sucked. He died in 2004. If I had stayed, I doubt I would have fared
My house is
definitely not worth a million dollars, but it’s nicer than anything we looked
at in California.
Dan and I just
returned from our trip to California. I had some frequent flyer miles to use or
lose, and Dan had never been south of San Francisco, so I decided to use some
miles to revisit some of my old haunts.
We started in San
Jose, where I lived for ten years, and ended in Los Angeles, where I lived for
The part of our
trip that people seem most interested in is our visit to a pot dispensary, so
that’s the part of the trip I’ll write about first. I’m going to be honest here
and admit I’m no expert on pot. I tried it once in 1976, and I felt… nothing.
And yes, I inhaled.
I knew Dan wanted
to visit a dispensary, but I didn’t know it was such a priority. He wound up
convincing our host, the widow of the man who wound up with my job after I left
it, to take him to a dispensary the first day we were in San Jose. We wound up
at Airfield Supply, which is right by the San Jose airport.
We had to show our
ID to get in the store. Once in the store, we had to sign a disclosure form
releasing Airfield Supply from liability for anything we might say, do, or
stand by as a result of any purchase we might make. Only after that were we
allowed into the part of the store with the products.
I was around in the
1960s, and this store is not what I was expecting, which was a bunch of stoned
long-haired hippie types saying “Dude,” “Cool,” etc. The staff could have been
mistaken for the younger folks I worked with at Company L (the Los Angeles Times ran an article in its
July 15 Business section titled “From Tech to Toke” on how tech workers are
migrating to jobs in the “cannabis sector.”) The folks at Airfield Supply were
highly professional and seemed to know their stuff, which makes sense. This is,
after all, a business, and the goal is to make a profit. Airfield Supply takes
credit cards, which surprised me, but, again, their goal is to make a profit,
and credit cards make for larger purchases.
Dan bought oils to
vape. One was “Afghan Elite” another was “Gorilla Glue.” His total before tax
cost was $100.10. Taxes added $28.49 to the purchase, so various state
government agencies collected 28% on Dan’s legal pot purchase.
He also bought a
package of ten small cookies “for me” (I have a well-known weakness for
cookies). The cookies, “Big Pete’s Cannabis-Infused Chocolate Chip Mini
Cookies,” are professionally packaged and even have a bar code—81156020633—if
you saw them on a grocery store shelf, they’d look right at home. These cost
$19, and the tax on that purchase, $6.32, was 33%. (Full disclosure, I ate 3½
cookies and not all at once; I think they did relax me, but that could well be
making 28% to 33% on all pot purchases.
If you consider the
money California was spending on pot prohibition before pot was legalized,
California is making a lot more than 28% to 33% on the deal.
Airfield Supply is just one dispensary.
Dispensaries are just about everywhere (although some upscale and upscale
wannabe neighborhoods prohibit them), and they advertise not only in the local Pitch-like papers, but also in the Los Angeles Daily News. (Newspapers have
to take revenue where they can get it these days--while we were in California, the Daily News announced it would lay off half its staff.) Interestingly, medical
marijuana dispensaries are urging their customers not to give up their cards,
since a person who has a medical card can buy pot at age 18; recreational
stores can only sell to those 21 and older.
It’s a new world
out there, and California has changed that new world from a liability into an
Perhaps the rest of
the country should do the same.
Sarah Kessler’s Gigged: The End of the Job and the Future of
Work is another of those books examining the current jobs situation. Ms.
Kessler, a reporter for Quartz, has
been observing the “gig economy” since 2011, and her research for this book has
included actually taking on gig tasks to see first-hand how the economy works.
The 250-page book
is a fast read. It took me less than a day.
In the book she
interviews several people, including an ethically flexible young man here in
Kansas City who worked for and then sued Uber. Uber is one of the few gig jobs
that has endured, but Uber keeps changing its terms, which has resulted in
drivers’ not being able to make a profit. I’ve talked to a couple of Uber
drivers because I couldn’t understand how they could be making any money. One
quit after coming to the same conclusion; the other built up a client base and
left Uber, taking his clients with him.
include a woman who gigged for Mechanical Turk (and wound up with carpal tunnel
syndrome and no health insurance), a man who left a high paid but boring job
for Gigster, where he did quite well, but in the end, he opted for a job with
One of the more
interesting stories is about Managed by Q, an office cleaning company. It began
as a gig company that contracted with other gig companies to get the cheapest
labor available. It turned out Managed by Q got what they paid for and lost
clients hand over fist. In the end Managed by Q became a company that
hired—gasp!—employees and found that approach, plus treating their employees fairly,
worked much better than racing to the bottom of the labor pool.
While the jury is
still out on the gig economy, Ms. Kessler seems to conclude it’s not the answer
for people who actually need their gigs to earn them enough to live on, and
that the race for the cheapest labor is usually not the best route for gig
companies as well.