Cost of doing business
As mentioned by the East Bay Express blog, they are really stepping up the blogging ever since Chris Thompson has returned, the Bay Area Council Economic Insitute, which used to just be the Bay Area Economic Forum and has recently merged with the Bay Area Council, has economic analysis on the state of the region. The Bay Area Council, as you will recall, were the big backers behind the creation of the WETA. According to the East Bay Business Times, there is good news and of course, the bad news. The good news, to borrow from the EBX’s characterization of the state of the region, we still kick ass. The bad news is that we’re getting older and older, which means that we’ll have a lot crankier population and we’ll start to see a lot more early bird specials in our local restaurants, oh and everything costs more in the Bay Area than in other global metropolitan centers.
Highlights from the Business Times:
Housing prices, road congestion, education weaknesses, restrictive immigration policies and a growing retirement pool seriously challenge the Bay Area’s ability to maintain its elevated status, according to a report Wednesday.
The Bay Area Council Economic Institute’s biannual Bay Area Economic Profile analyzes the Bay Area’s changing economy and benchmarks its performance against Boston, London, New York, Tel Aviv, Stockholm, Shanghai, Singapore and major metropolitan centers…
Okay, so brief pause, I went to the BACEI’s website to find the report and under the summary narrative it says:
Every two years, with support from McKinsey & Company, the Economic Institute produces the Bay Area Economic Profile report…
I hate to be a nitpicky person but if the report is produced every two years wouldn’t it be biennial rather than biannual? But I suppose I digress.
Continuing from the BT:
…The report affirmed that the region’s productive and educated work force, deep venture capital pool, concentration of research organizations, culture of innovation, and receptivity to new ideas have made the Bay Area a major hub of the global economy.
The Bay Area has the fourth-highest concentration of Forbes 1,000 global companies with 21, ranking after Tokyo, London and New York…
However, residents must allocate a significantly higher portion of their income to housing than elsewhere in the United States (26 percent vs. 19 percent) and the multiple of home price to income (10:1) is twice as high as the national average (5:1).
It is also much higher than in other global centers such as London and Shanghai.
…
While the United States provides a relatively business-friendly atmosphere, the cost of doing business in the Bay Area — including salary, rent, benefits and telecommunications — is higher than in any other major business center, except London.
The Bay Area’s economic strength is rooted in its high concentration of talented and highly educated workers that produce an average of $122,000 of goods and services each year, 30 percent higher than the U.S. average.
…
“Despite the very good news about the region’s competitive positioning, high costs are a serious concern,” said Henry Gardner, executive director of the Association of Bay Area Governments. “Working together, the region simply must build more housing closer to where the jobs are and produce housing which is considerably more varied and affordable than it is today. If we don’t, transportation congestion will worsen and our environmental and energy problems will worsen.” …
Some other bulleted tidbits from the BACEI website:
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The largest number of top-ten ranked graduate programs in business, law, medicine and engineering in the nation;
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The highest level of patent generation in the nation, with more patents generated per employee than any other major metropolitan area;
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The most highly educated workforce in the nation, with the highest percentage of residents with graduate and professional degrees;
To wrap up, we’re doing pretty good in the world, but it may not continue to be that way if we don’t make housing more affordable AND locate it closer to where the jobs are to help reduce transportation congestion. We also need to find a way to lure and retain more young people in anticipation of our a large portion of our population entering its golden years.
Speaking of retaining young people, don’t forget that tomorrow the Yes on H (as in school parcel tax) campaign is having its Big Walk Day tomorrow at 9:30 a.m. to get the word out about the parcel tax. For more information click the link.
Edvard’s gonna need an extra tub of vaseline when he reads this article.
Comment by dave — April 4, 2008 @ 7:08 am
The remark about the education gap was certainly timely.
“Education of schoolchildren from kindergarten through high school lags behind other international locations, leaving local students comparatively deficient in math, science, reading and problem solving, the report says.”
Comment by Susan — April 4, 2008 @ 8:26 am
Just goes to show you that edjucashun is overrated.
Comment by Jack Richard — April 4, 2008 @ 8:34 am
Quotes like this always crack me up, and remind me of Mark Twain. To wit: getting old isn’t so bad when you consider the alternative.
Comment by OmbudsBen — April 4, 2008 @ 1:43 pm
Kind of funny- I’ve been mentioning this for years. Why it’s such a mystery that the BA is aging away is interesting. Simply put, most people my age ( early thirties) are making plans to relocate for none other than the cost of living and that many of the companies that we work for are setting up shop elsewhere. It’s easy to see where people are moving to. Some of the youngest cities are Austin TX and Atlanta: Two lower cost cities with economic opportunities.
Its good that at least a few people around the Bay are now starting to wake up to reality that they are going to have to make concessions to make the area more livable or get turned into Florida.
Comment by edvard — April 4, 2008 @ 4:07 pm
But housing is cheap in Fla — isn’t that your rasion detre?
Comment by Wilson's Bobby — April 4, 2008 @ 6:15 pm
# 5
Economic opportunity is what begets population growth. The dot com shakeup reduced economic opportunity in the BA and the ripple effect diminished economic growth throughout CA. The only sector it didn’t affect was the state bureaucracy and their propensity to spend other people’s money. Fact is, all of the BA is currently gaining population. I doubt people are moving here to retire. If the thirty year olds leave, they either leave because they can’t or don’t want to compete or they yearn for an empyrean heaven in places like Nashville or Austin. And those thirty year olds leaving are quickly replaced by denizens of the same age or younger leaving the infernal regions of misery like Nashville or Austin.
Comment by Jack Richard — April 5, 2008 @ 9:59 am
Jack… I don’t suppose you’ve actually been to either Nashville or Austin since your comment regarding them was a little blunt.
Anyhow, the problem for the BA is much more than just the cost of living. The single biggest issue is it’s inability to provide reasonable transportation to and from different areas. While other cities pride themselves on their commuter lines and transit systems, the BA lags behind severely. I lived in Boston for 3 years. The “T” system there was marvelous. Whether you lived way outside the city, or just down the block in a tiny little burb, a bus stop, T, or train station was never more than a 3-5 minute walk. I never drove there. You didn’t need to. Even in the dead of winter or the miserable hot of summer, one could sit in comfort from one end of the city to another on the MTA and be anywhere in less than an hour. I wouldn’t even call the system here in the BA a transit system. A joke maybe, but to me the system here is more of a token gesture to an idea that never tool off, and due to the lack of funds and the NIMYB sentiment… never will.
Additionally, the freeway system is totally inadequate. Communities like Marin were so animate about not having any major highways or roads going through their city that it took almost 30 years to complete the one and only freeway that goes through it. As a result, traffic backs up for miles into the city just trying to gain access to it,which in turn simply causes a massive bottleneck. I know because I used to work there. All of the work centers of the area- like SV- are poorly serviced by the freeways. The roads are totally incapable of handling the traffic. The reason for this is complex. The first is that the powerhouse of the BA economy exists there which in turn creates a massive demand for housing for families who want to live closer to work. Since the communities like San Mateo, Palo Alto, and Redwood city all have their own version of Alameda’s Measure A, then there’s only so much of a supply in terms of housing. Predictably, this puts the cost of even a small 2 bedroom home in the area close to a million dollars. The rest have to suck it up and rent or live somewhere else, which usually means living an hour out or more. The stress this puts on the freeways is severe. And again- these areas lack public transit that would even come close to matching the need.
The very geographical composition of the Bay Area itself makes development of additional support infrastructure almost impossible. Whether it be water, marsh or fault lines, there are only for the most part narrow strips in which to expand upon. In other words, there is only so much room for transportation enhancements.
Lastly, the BA has for years had this sort of empirical opinion of itself as the only place where upper end technology and research can be undertaken and therfor, the higher wages, the higher cost of living, and so forth are all neatly accounted for in some detached equation. Perhaps that was true as recent as 5-10 years ago, but definitely not so now. I’ve been studying this for awhile now and in regards to at least one city- Austin- Most Bay Area tech corporations have setup operations there. Additionally, there’s a lot of new startups there as well that are locally born. The same can be said for any number of other younger, second tier cities that also happen to have an increasingly younger and subsequently more idealistic population of eager entrepreneurs.In Summary, the Bay Area no longer has the upper hand in that area and when you suddenly have millions of eager tech workers contently living in other cities working at a fraction of the cost, well that’s what you call competition.
Despite what you say Jack, the fact is that more people are leaving the Bay Area than coming. You need to understand that there is a BIG difference between domestic out-migration and international in-migration, of which the majority of those young people who you claim are eagerly replacing people like myself are most likely from Mexico, which I am not condoning, but realistically, most of them will not be replacing tech workers, sorry to say. The facts are that more and more people like me are leaving. When was the last time that you saw a 30-something couple buy a house in Alameda? Probably not recently.
You’re also incorrect that we are leaving simply because we don’t like to compete. The total opposite is true. In fact, we’ve had to work harder, longer,and more competitively as a result of the rise in the cost of living. Being a school teacher, HR manager, or in some cases even a Doctor simply doesn’t cut the mustard here anymore. If you want to buy a house here, then you’re going to have to bust your ass 24/7 and be in the constant pursuit of more dollars. Realistically, you need to be making 250k+ to be buying a house here, semi-post bust. I don’t know many teachers making that kind of money. The truth is that me and most others our age are fed up. We will work as much as possible, live as frugal as deemed necessary, and climb the ladder to the sky. But there comes a time when we have to ask ourselves if all the good that the Bay Area offers is really worth it when you consider not only the cost of living, but the crumbling infrastructure that no longer serves it. We’ve just about had enough.Perhaps people like you don’t understand this. But perhaps you should start asking more of us about it. I think you’ll find that my sentiment isn’t out of line.
We just want a better quality of life, which I don’t think is unreasonable.
Comment by edvard — April 7, 2008 @ 8:27 am
# ate
The fact remains that even after all your denigration of the BA, promises to leave, sabbaticals from this blog and numerous variously stated “being fed up” with the here here, you’re still here.
Comment by Jack Richard — April 7, 2008 @ 8:42 am
I have to agree with edvard, doctors can’t afford to live here…doctors don’t make much money here…to much competition and they all want to stay after med school. As a doctor you can make much more in the Midwest or east coast…but why do they choose to make less to live here?
Comment by Joel — April 7, 2008 @ 10:39 am
Actually, There’s a shortage of both Doctors and Nurses in the state, much of what can easily be attributed to the fact that you can basically make the same elsewhere. I know this for fact because my best friend’s sister is a nurse, lived here for 3 years, then wound up getting an offer in Denver for the same amount. She now owns a nice house not far from downtown. I also recall having a conversation with my physician last year. He caught my Southern accent and asked me what it was like there. He was thinking of moving his family to that region. Why?- again- to afford a better standard of living.
last time I was home, there’s a lot of evidence to back up what I say as becoming prevalent: Nashville, Knoxville, and some of the cities in between were growing rapidly. The headlines on the paper I saw in the airport in Nashville read: ” Newcomers set up new lives in Booming Burbs( aka-Franklin, silver lake, etc) the story read just like something I would say: ” Such and such family from CA, NY,etc found that they had had enough of the prices in SF.NY,ECT and moved to Nashville.” When was the last time you heard of something like that occurring in SF? Have you ever heard people say:” Gosh, I’m movin’ to California cause’ it’s a better place for my family.”
I have one buddy who moved to Austin last year from Chicago. The payment on his house is actually less than rent in that area, and roughly 3 times cheaper than his rent in Chicago where it gets freezing-ass cold. He LOVES it. He mentioned to me that approximately 30% of the employees at his tech firm are Cali refugees.
And for you Jack- why am I still here? simple. My rent is cheap, I make pretty good money, and I save probably 70% of my income. Eventually, that amount will translate into buying a house for cash with retirement money leftover. Wouldn’t it be cool to live in an equally diverse, ethnically balanced, city with zero debt? add to it that one of those cities would be growing dynamically and provide the same jobs I have here. To me, the BA is toast. There’s no room to expand, and the cost just about eliminates the positives. Personally, I think there’s more to life than being in debt up to your eyeballs to own some small house on a sandbar. then again, that’s just my humble as American Pie opinion. But I don’t mind sticking it out for a few more years while the bubble implodes and I can prepare by saving in the meantime.
Comment by edvard — April 7, 2008 @ 11:21 am
2 friends of mine (30-ish couples each) are buying (2) homes in Alameda.
Comment by Roberto — April 7, 2008 @ 12:11 pm
The 300 block of Haight Ave is experiencing a complete transformation in the past six months. We have five new families with over 10 children under the age of 7. We even had a house go on the market last month that went above the asking price. Must the annual block party.
Comment by Mike McMahon — April 7, 2008 @ 2:04 pm
Roberto, if your friends are planning on buying now, ask them if they read the paper or at least check the MLS. Every down market is full of knife catchers, but perhaps they should consider if they want to be paying more than what the house will be worth in 3 years. As far as homes “selling above asking price”,there’s an easy explanation. I’m somewhat familiar with that area you are referring to, which like the Gold coast with some upscale homes. In a down market, the upper end of the market tends to hold up since people with deeper pockets aren’t affected as much by tighter credit and higher prices.
On the other hand, there are at least 10 other homes for sale in that area in the not-so-posh areas with typical 550k-650k asking prices that have been sitting forever. I know because when I drive to the grocery store, I’ve almost memorized these homes. Many have weeds growing up fairly high at this point.
Either way, anecdotal evidence is totally different from the facts. The raw numbers from Dataquick. The February numbers for 94501, shows a -59.6% YOY decline in sales and a -18.8% YOY decline in median price. For 94502, only 7 homes sold. That’s where many of those upper market homes reside. There was also a -22.2% decline in sales as well, which isn’t as bad as 94502, but still enough to clearly indicate that Alameda is just like the rest of the BA and tanking.
I have absolutely no doubt that there’s still a lot of kool-aid in the air around here and that somehow, Alameda is simply to lilly white and “family friendly” to fall in value. But it already has and will continue to do so.
Besides the point, that wasn’t the subject of the post, which was to indicate a transition of the area for none other than quality of life issues, of which I concur and clearly fit under. I could care less if there’s a few more eager people willing to slap down 600k or more on some overpriced bungalow. More power to em’. That means less population density and traffic in other cities.
Comment by edvard — April 7, 2008 @ 2:51 pm
Mike Even if you guy’s didn’t have the annual block party, the 300 block of Haight Ave. is an excellent reason to live in the West End of Alameda.
Comment by john piziali — April 7, 2008 @ 9:35 pm