I’ve Seen This Movie Before, and I Remember the Ending: On the Tech Bubble and Unaffordable Housing (Part 2)

Read Part 1

You know how I mentioned that a lot of Silicon Valley workers were living in San Francisco? One of them was my dad. He was a computer programmer, and he would drive or take the train down to places like Menlo Park, Mountain View, and Redwood City. He was living in San Francisco partially because my mother owns a house in San Francisco, but partially because he doesn’t like Silicon Valley, and does not want to live there. Silicon Valley reminds him of how the semi-rural town he grew up in got developed into a suburb full of generic houses and businesses, ripping out most of the natural environment in the process. He prefers San Francisco because, as he puts it, “San Francisco has history”.

Anyway, what happened during the dot-com bust?

Rents fell. Housing remained expensive, but there was much less talk and protest about gentrification, and housing was no longer the top political issue. What became a more important political issue? I’ll give you a hint: according to the California Employment Development Department the 1999 unemployment rate in San Francisco was 3.1%. In 2002, the unemployment rate was 6.9%. And then a year later the municipal government started issuing same-sex marriage licenses, which both provided a welcome boost to the economy and gave everyone another political issue du jour…

2002 was the year my dad lost his last job. His plan was to live off his savings until he could get another job – but he never did get one. Luckily for him, a combination of Social Security (once he became eligible), his savings, and what he inherited from his parents has been enough for him, and I now describe him as ‘retired’. Granted, he had ageism working against him, so his employment situation can’t be entirely blamed on the economy, but I don’t think it’s a coincidence that he dropped out of the workforce around the time of the dot-com bust.

The fall in both housing and commercial rents were a boon to some folks who were hurt less by the dot-com bust than by the heights of dot-com era rents. I knew some of these folks. Nonetheless, there is a reason why nobody says ‘Let’s reduce the rents and the cost of buying a home by doubling the unemployment rate!’.

I think, however, that an economic downturn is going to be the very thing which brings down the cost of housing in San Francisco, just as it was in the dot-com boom-bust. I see signs that the downturn is already beginning – such as the layoffs at Twitter (note that Twitter has never turned a profit). And I fear that, just as this housing crisis was more extreme than the dot-com one, the coming economic downturn will also be even harsher than the dot-com bust.

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6 thoughts on “I’ve Seen This Movie Before, and I Remember the Ending: On the Tech Bubble and Unaffordable Housing (Part 2)

  1. Somewhat related via real estate, I was wondering why Taipei real estate is so expensive. Taipei’s economy is nearing recession and hasn’t been booming for a while.
    The other day, I visited the Red Room in yet another nice government-sponsored cultural center using some old factory or base in Taipei for artists or makers or hipsters to hang out in. I was thinking, this is nice, but why doesn’t Taipei use these spaces to build a lot of housing to make it easier for people to afford a home and have a family? Isn’t this a no-brainer, and won’t it pay for itself, and lead to lots of positive side-effects?
    Reading your article it hit me that it’s in no one powerful’s interest to take measures to lower housing costs. Real estate developers are powerful. Perhaps in an alternate universe where corporations were required to pay their employees’ rents this would be different. It’s all a bit baffling to me.
    http://qz.com/212347/taipei-now-has-the-most-expensive-housing-in-the-world-and-theres-not-much-it-can-do-to-fix-that/

    And by the way (sorry if this is too long or uninteresting, just delete) recently I was surprised to learn that there’s a country where there’s no real estate bubble:

    In World’s Best-Run Economy, House Prices Keep Falling — Because That’s What House Prices Are Supposed To Do

    When Americans travel abroad, the culture shocks tend to be unpleasant. Robert Locke’s experience was different. In buying a charming if rundown house in the picturesque German town of Goerlitz, he was surprised – very pleasantly – to find city officials second-guessing the deal. The price he had agreed was too high, they said, and in short order they forced the seller to reduce it by nearly one-third.

    http://www.forbes.com/sites/eamonnfingleton/2014/02/02/in-worlds-best-run-economy-home-prices-just-keep-falling-because-thats-what-home-prices-are-supposed-to-do/

    Most Germans don’t buy their homes, they rent. Here’s why

    Many Germans can’t be bothered to buy a house.
    The country’s homeownership rate ranks among the lowest in the developed world, and nearly dead last in Europe, though the Swiss rent even more.

    Regulations, a solid supply of rental housing, and the fact that German property prices historically rise very slowly … mean German rents don’t rise very fast. And because one of the main reasons to buy a home is to hedge against rising rents, the tendency of German rents to rise slowly results in fewer homebuyers and a lower homeownership rate.

    http://qz.com/167887/germany-has-one-of-the-worlds-lowest-homeownership-rates/

    • Re: Taipei – ha ha ha ha ha, yes, the cost of buying a home in Taipei makes San Francisco real estate prices look very reasonable! My understanding is that Taipei real estate is driven by Chinese money. It’s very difficult to stash large sums of money in China (negative interest rates), and since China is nominally a Communist country, the state can legally seize property relatively easily. Thus, a lot of Chinese people who need a place to store their large sums of cash chose to buy homes in Taipei, where the Chinese government can’t seize it so easily. This is why the rents in Taipei – at least when I was last there – were still reasonable (outside of Xinyi and Tianmu) – most of the people with the Chinese money aren’t actually living in Taipei.

      (I quickly checked http://rent.591.com.tw, and I was able to find 獨立套房 in the Zhongshan District for about 10K NT per month – when I lived in the Zhongshan District for a few months, I paid 9K NT per month for a tiny, tiny room. In Taoyuan, I lived in a relatively spacious 獨立套房 near the train station and paid 7K NT per month – and in three years, my rent was never raised).

      I also hear that a fair bit of Chinese money is slushing around in the San Francisco real estate market, so the Taipei and San Francisco real estate bubbles have that connection. However, there are a lot more people who are trying to move into San Francisco per available housing unit than in Taipei, which is why the San Francisco rents are much higher.

      The housing speculation bubble is even spreading into Taoyuan, or at least it was when I was living there. However, most of Taiwan seems to be immune from the housing bubble (though my information is no doubt out of date). I guess the Chinese money doesn’t know much about cities other than Taipei.

      Yes, I have been aware of the low cost of housing in Germany for a long time. It’s partially because German policies are designed to keep the cost of housing low, with a combination of rent controls and making it very cheap to build/develop new housing. However, Germany also has the lowest birth rate in the world – if they were to have a large population increase (which might happen via immigration) the cost of housing may also go up. I think there’s also a cultural element to homeownership – if it was just about rents, then I think a lot less Taiwanese people would be buying homes since Taiwanese rents also rise slowly.

      And finally, about that industrial-space-turned-cultural center – I am not familiar with the Red Room, but I’ve certainly been to them in Taipei (especially Huashan, though I also went to the one in Songshan for a major exhibition). Converting those spaces to artist-hipster areas is relatively cheap. Developing any kind of building which could meet Taiwanese building codes (which are strict because of the risk of earthquakes and typhoons) would be a lot more expensive. They could probably still make their money back due to the real estate bubble if they tried to develop it into housing, but given that the rents are not that high, and there is a lack of open/public space in central Taipei, I think having it as an artist/hipster space is not such a bad idea.

      • > Developing any kind of building … would be a lot more expensive

        But this is what I don’t get: is housing expensive because of:
        1. a shortage of space, Chinese money, a bubble, insufficient demand, etc…
        2. or because the actual cost of constructing a building is high?

        I assume 2. is small potatoes compared to the effects of 1. So I’m still going with my paranoid theory that no one with power wants cheap housing.

        (Taiwan has as low a birth rate as Germany’s, so surely it’s something else that makes the difference).

        And sure, public space is nice. But the ability for young people to house themselves and start a family seems much more important.

        As for these on-the-cheap (or not) spaces in Taipei, apparently some call them “mosquito spaces” — high prestige / high concept public spaces that only mosquitoes hang out in.

        Some nice photos of Taiwan’s “Mosquito Halls”:
        http://creativetimereports.org/2014/03/24/taiwan-mosquito-halls/

      • Those are nice photos. I have seen places like that myself during my travels around Taiwan. However, I never found them in Taipei itself (though occasionally I could find a place like that in New Taipei aka Taipei County). Taitung (city or county) does not lack public spaces – but Taipei isn’t Taitung. It’s also worth noting that these places are most likely to be abandoned if they are in areas with declining population, or worse, with access issues – for example, I’m guessing the building on Keelung island became a mosquito hall around the time that regular boat service to the island was discontinued (2011).

        To me, that’s very different from converting an old pre-WWII building – which is already standing there – into a public space.

        I think, with regards to young families, what would be even more helpful than new housing is low-cost/high-quality childcare (perhaps something like the system in France). Based on my observations of Taiwan, this is a bigger squeeze on families with young children than the housing issue. That’s why the Taiwanese countryside is full of old people and children but not so many people in between – lots of rural grandparents take care of their grandkids because the parents are busy working in the city and can’t afford daycare.

        I do agree that people in power tend not to mind if housing is expensive for the masses.

        Of course, I agree that #1 is why buying a house/condo in Taipei is so viciously expensive, not the cost of construction. But the rents are much lower than the cost of buying a home in Taipei.

        Another thing a lot of young families do is they move to Taoyuan 🙂 where most essentials (housing, food, probably even child care) are cheaper than Taipei, while still being within close to the Taipei economy. When I was in Taiwan, Taoyuan county had the highest birthrate in all of Taiwan.

        From a long-range perspective, I think shifting population from Taipei to Taoyuan is probably better than trying to squeeze more residents in the Taipei basin, since Taipei is much more vulnerable to basically all kinds of disasters (floods, earthquakes, military invasion, sea level rise, water shortage, nuclear power plant meltdown, etc.) than Taoyuan. There’s a reason why there is talk of moving the capital of Taiwan to another city.

        But I chose to settle in Taoyuan rather than Taipei, and I’d sooner move back to Taoyuan than to Taipei, so of course I’m biased.

  2. I think I need to pay a visit to Taoyuan some time instead of just passing through to take a plane…

    This paper on unaffordable housing in Taiwan covers what we’ve been talking about:
    http://www.brookings.edu/research/opinions/2015/07/15-taiwan-rising-housing-prices-chen
    “reforms are restrained due to continued protection of private developers’ interests”
    That kinda makes me mad.
    It’s funny, I haven’t felt this anti-capitalist in a long time 🙂
    But it’s all a matter of time and place. What worked a generation ago no longer works. And why would it? Both Taiwan and California have been on a wild, wild ride in the last 100 years. And as you say it ain’t over yet 😀

    • (Confusingly, what was known as ‘Taoyuan City’ when I lived there is now known as ‘Taoyuan District’, and what was known as ‘Taoyuan County’ is now ‘Taoyuan City’. In this comment, ‘Taoyuan City’ refers to the city of about 400,000 residents, and ‘Taoyuan County’ refers to a region with about 2 million residents, including the residents of ‘Taoyuan City’).

      Unless you know people there, or you have business there, or you want to see/shop in the South-East Asian immigrant neighborhoods, there’s no reason to visit Taoyuan City. There are good reasons to live there instead of Taipei – lower cost of living, better weather, relative safety from natural disasters, etc. but there isn’t much there which you can’t see in many other parts of Taiwan.

      The part of Taoyuan County which is most worth *visiting* is the hills/mountains i.e. Daxi and Fuxing. You can reach most of the highlights of Daxi and Fuxing by taking the Cihu tourist shuttle (http://www.taiwantrip.com.tw/Besttour/Info/?id=3) or the Xiao Wulai tourist shuttle (http://www.taiwantrip.com.tw/Besttour/Info/?id=46). The two biggest highlights of the Taoyuan hills/mountains which you can’t reach by those tourist shuttles are Dateliao Old Trail (https://taipeiescapes.wordpress.com/taipei-escapes-2/walk-39-datieliao-old-trail-and-white-rock-mountain/) (my favorite place for seeing Tong flowers in all of Taiwan), and Lalashan, which is one of my favorite forests in Taiwan.

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