Tech employees making $200k+ are the only ones who can afford a $4k per month apartment in SF. If salaries drop then rent drops. I don't see this being a bad thing.
This is a huge misconception: tech is actually a small percentage of SF employment, especially at the high end. Those $4k+ rents are being paid by bankers and lawyers. It's still called the "Financial District" for a reason. The finance sector laughs at our $200k salaries. They are the ones inflating the rental market because a few k per month is a rounding error.
I know a thing about tech, lawyers, and banking. You're talking about misconceptions about tech while feeding misconceptions about law and banking.
In reality, most people in all three industries don't make $200K salaries. A big chunk (but by no means all) of Bay-area FANG engineers, New York bankers and Biglaw lawyers get this type of remuneration. Should be said too that most (not all) of these are pulling off insane, crazy-making hours as well.
If you think lawyers are rolling in it you have not been paying attention to what's happened to the profession over the past decade. Simply anachronistic. If you're going to generalize, it's a much better time to be an engineer than a lawyer in 2016.
All three of these professions have massive disparities in remuneration.
For all this talk about how engineers "might" get laid off, this completely ignores the massive contraction of the legal market that has already happened.
Outside of a few specific areas of law, and a few high powered law firms, lawyers don't make that much money.
My ex, a nationally renowned family lawyer in literally the richest area of the country doesn't make more money than i do (and she runs her own firm, so it's not like she is being kept down by partners).
Yeah the comment about lawyers and bankers making more than engineers is straight out of 1995. Outside of highly specialized degrees in medicine there really isn't any other jobs out there paying a white collar wage ($100K +).
We moved into a new apartment in NYC in the summer of 2009. The previous tenant had a two-year lease at $4500 (struck in July '07). Our rent was $2800.
In the rental market a big driver of the landlord decision cycle is needing, at a minimum, to have a reputable tenant and to cover the cost of carry of the asset (mortgage, etc). In many cases if their cost of carry is met (and that's often a low bar....many landlords in both NYC and SF own their apartments outright, or are paying tiny monthlies on a refinanced mortgage that was originated in the 90's), then the priority is getting a reputable tenant who won't destroy the place or create drama.
If the above paragraph is confusing, basically what I am trying to say is that a landlord often prefers, for example, $3000/month from a tenant who they think is 98% likely to be an "easy tenant" to $3500/month from one who they think is 80% likely to be the same. In other words, there's a market premium on reliable tenants, especially in places like SF that have aggressive tenant-protection laws which make landlords even more antsy.
As layoffs start happening (as they did in the nine months before we signed our lease back in '09) landlords of reliably-paying, drama-free tenants start getting antsy about keeping their current tenant or finding a suitable replacement.
As such, what drives prices in markets like NY/SF isn't just supply-demand equilibrium; there's also a significant behavioral economics angle aspect to it as well, as landlords are willing to pay a premium for peace of mind.
Therefore, I would expect a significant drop in SF rents if layoffs start coming.
This times 100. A bad tenant can cost you tens of thousands of dollars, not to mention peace of mind. I once had one who lied about owning my property to have a 60 year old tree cut down. It was a nightmare (it turned out he had sued his previous landlord in a bogus sexual harrassment and basically extorted a hundred grand from an elderly woman).
I would much rather have someone who pays less, but is financially and mentally stable. So yeah, rents will drop pretty fast once the market softens.
SF in particular is a unique market because you have one population that is hell bent on staying here, and another that is primarily here for work opportunities. The latter population will clear out pretty quick once the work starts to dry up.
Probably not, because people don't ask. In 2008 when I was living in NYC, I asked and received 10-15% year over year decreases in rent (3 years). Long time NYers thought I was crazy to even ask. Incredulous I got it. And this was in Manhattan, doorman building, a few blocks from Lehman Bros.
So yeah ask. And be prepared to move. If you aren't prepared to move, you're not ready to save.
Just curious, what do you mean, be prepared to move? Did you tell the landlord, "I will move if you don't give me a 10% decrease in rent"? I'm finding it hard to believe that in a market like NYC where the rents are sky high generally increasing, you could get such a discount.
It also depends on the kind of property taxes prevalent in the states. e.g. in California, property taxes are set at the time of purchase, while in Texas they are reassessed every year. So, my landlord (in Texas) basically increases the rent to cover for the increase in property taxes.
> I'm finding it hard to believe that in a market like NYC where the rents are sky high generally increasing, you could get such a discount.
I was able to do the same thing when re-signing the lease for my NYC (East Village) apartment in June 2009. My roommates and I drafted a letter requesting a 10% reduction, citing decreased rents 1) in the neighborhood and 2) in the rest of the city - specifically in the financial district where "luxury" buildings were giving away multiple months of free rent as a signing bonus - and the management company accepted it without a word.
Tenant protection laws in NYC are very tenant-friendly, to a degree where someone who is sufficiently motivated and knows the system can effectively live in an apartment rent-free for up to a year at a time, if not longer.
Landlords are scared to death of deadbeat tenants like this, it costs a lot of legal fees to get rid of them, and they're freeloading while you're walking through the necessary legal processes.
Every time the apartment goes onto the market they're rolling the dice again - so the value of an existing pleasant tenant is substantial vs. the risk of a tenant of unknown quality.
Which isn't to say you can just get your rent slashed whenever you want, but it's part of the negotiation, and coupled with a recession it can be a powerful argument.
Depends if you are talking about private small landlords or corporate institutional (ie, Related). The former has totally different motivations and needs. I haven't received rent reductions but I have fought off rent increases in strong markets.
Yes exactly. Its not a negotiation if you wont walk. Car dealer won't change price? Walk and buy a different car. If you are too in love to walk you already lost the negotiation.
I think that that threat is more dependent on how fast they can fill the apartments. If the apartment ends up on the market for 2 months... well 10% decrease is the better option isn't it?
I didn't literally say I will move. I was more coy and diplomatic about it. I just said the market is different, rents are coming down in the neighborhood, it's a great location and apartment and I'd really like to stay here but economic good sense tells me it's reasonable to request lower rent right now, and I think $x is reasonable.
The parent poster was suggesting that compensation would drop, but not necessarily salary. In other words, the $200k engineer might be making $120k in salary and $80k in other forms of deferred pay. That $80k will be gone in this example, but the $120k will remain. People pay rent out of their actual cash income, not out of unvested stock options.
Yeah, at the cost of increased volatility. If two engineers, each with a 10% chance of losing their job in the next 2 years, do this then they both are much more likely (19% chance) to face uncertainty in that time.
You may be missing the point. Say most tech engineers double up (as if they aren’t often doing this already). Guess what? You just significantly reduced demand for high-rent apartments
Renters will increase the price knowing full well that people will double up. Also if the renters are ruthless they would directly tell you to have more people packed in an apartment to pay their price and if people are helpless they would have to cough up or find some other job in another state where you can live decently with lesser pay. Also a lot of shitty apartments will increase their rents which puts more pressure. This I feel is simple price discovery at work. This is why it is better for the company to spread itself in different places rather than hole up in a single place and pay very salaries which are not sustainable. I really don't understand start ups which are supposed to be tight on cash sitting on one of the costliest real estate and expect to be profitable.
Right. I guess it depends on what your other expenses you have. For example, $2k out of that extra $3.5k would got to student loans for me. So spending $3.5k on rent just doesn't work. If you don't have student loans or any major debts sucking up your income then I envy you.
I'm pretty fortunate in that not only do I not have any debt, but my fuck you fund has enough for several months of full living/lifestyle costs. If I move back to my home country, then I have enough for two years.
Closer to 45% really. But it's still cheaper than paying less rent and owning a car. Not having any dependents is also pretty handy in keeping money piling around instead of spending it.
We also save a lot (and are healthier and save time) by cooking at home instead of going out to eat.
So, really, we get to both live in downtown SF, and travel pretty much whenever we feel like it.
What's your reason for living in SF and still traveling frequently? Access to work in SF?
I ask because I'm a remote worker for an SF startup, home base in a low cost of living area, but I travel frequently as well (but the home was purchased somewhere where the house is paid in full already and the monthly upkeep is ~$500/month).
Access to work is about the same as remote with social network in SF.
Two reasons why I choose to stay here: 1) building said network so I can go back to proper nomading easier, and 2) access to the startup lottery; nobody gives shares/options to remote workers and/or independent consultants/freelancers
Lottery is a nice potential upside with next to zero downside as an engineer
What is special about 12%? Are you saying that someone is spending excessively on housing if their rent is $500/mo and they are making $4k/mo gross income?
