Ken Rosen sides with those cautioning a downturn at his recent speech in San Francisco.

According to a recent San Francisco Business Times article:

Two great risks could bring an end to the Bay Area’s boom times: a hard economic landing in China or major players in the capital markets coming to their senses, warned Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley.

“This is the biggest boom we’ve ever had, and I have to tell you, ‘Booms never end well,'” Rosen said in speaking Monday at the Fisher Center’s 38th annual Real Estate & Economics Symposium held at the Westin St. Francis hotel in San Francisco.

“China is the single greatest risk,” Rosen said.

Far be it from me to argue with such a luminary, but I still see the Bay Area’s greatest risk being the increasing cost of housing (driven by NIMBYism) – as this translates into a direct cost of doing business which will continue to deter new endeavors and push existing projects into relocating instead of expanding – we’re reaching a structural cap on how much economic growth our housing stock and infrastructure (especially transportation) can handle.

Of course, a recession could solve those problems pretty quickly in the short term, but the business cycle will continue to turn and we need to plan ahead for the long term, not just the next couple of years.

As analytics are only as good as the data and algorithms behind them, I’d love to see how Everyhome ranks our current investment scenarios in the East Bay.  They are touting the benefits of their “advice engine” pretty aggressively, here’s an excerpt from a recent article by the Puget Sound Business Journal:


Bryan Copley’s Seattle company, Everyhome, has come up with a tool that for the first time ranks every property in King County based on its redevelopment potential. Everyhome is working to roll out the tool nationwide. If successful, the six-employee company could forever change the real estate industry. Anthony Bolante

It may not be just private builders that could benefit. Everyhome could sell the service to cities struggling with gentrification. There’s “a lot of opportunity here for public good,” Copley said, if Everyhome can figure out a model where cities get the first right of refusal on properties that, if redeveloped, would displace people. Copley said making a profit is important to him, but so is that he calls “sustainable capitalism.”

The website scores each property based on its redevelopment potential. As Copley increases the website’s scoring tool, more properties drop off the map. “You start to see very tight clusters,” he said, as dots form show up on the map in the University District, Fremont, Ballard along 15th Avenue and other neighborhoods. The area with the most potential: Capitol Hill.

No word yet on what data their scoring systems use to evaluate which properties would be best suited for development (other than the “zoning” comment in the article, which it seems should be a no-brainer).   If they are able to team up with a larger analytics company such as Zillow and evaluate changes in rental patterns, building permits issued, traffic flow changes et al. we might be able to see some trends that investors on the ground aren’t intuiting yet.  I’m still skeptical, but willing to be convinced otherwise.

Of course, we’re all excited to hear that Uber just agreed to purchase the Sear’s Building in Downtown Oakland.  While Oakland seems to finally be realizing the potential many of us have been predicting for too many years now, I worry that the increased cost of doing business here will clip the wings of our economic expansion.  Housing costs are rising far faster than median wages, and there is only so long we can keep pushing up the percentage of income going towards housing costs.

For a great graphic on how far the East Bay (among other areas) is behind on creating additional housing, check out a recent “map of the month” from our Metropolitan Transportation Commission.

Bay Area Housing Production

Americans living in rentals spent almost a third of their incomes on housing in the second quarter, the highest share in recent history. Rental affordability has steadily worsened, according to a new report from Zillow, which tracked data going back to 1979.  A renter making the median income in the U.S. spent 30.2 percent of her income on a median-priced apartment in the second quarter, compared with 29.5 percent a year earlier. The long-term average, from 1985 to 1999, was 24.4 percent.

Source: Renting in America Has Never Been This Expensive – Bloomberg Business

Redfin CEO Glenn Kelmann recently crunched the numbers on the rise in home prices as tech hiring picks up:

Three weeks ago, Redfin published a report showing that one in four Silicon Valley home-buyers is looking to buy a home outside of Silicon Valley, up from one in seven in 2011. This digital diaspora promises to bring some of Silicon Valley’s wealth-creation to cities across the country, especially Seattle, Portland, Austin, Boston and Denver. It has already begun to increase the cost of living.

But exactly how many technology workers does it take to increase home prices in these cities? To answer that question, Redfin took the hiring of the four largest Internet-related companies — Google, Apple, Facebook and Amazon, in Silicon Valley and beyond — as a proxy for each metropolitan area’s overall growth in technology hiring. What we found is that for every 1% increase in technology workers, there’s a roughly half-percent increase in home prices above and beyond the national rate of appreciation.