This is not all that surprising:

It is not surprising for at least two reasons:

• We knew that central banks would tighten the money supply at some point and that it would have a negative impact on asset prices.

• Many of us believed that a lot of people were making a somewhat long-term decision (flee the city) because of something that would ultimately prove to be short-term dislocation (a ~2 year health crisis).

So one of the things I think you can glean from Daniel's tweet is that our best urban centers are resilient. Notwithstanding the fact that we have things like Zoom and previous pandemic-suffering generations did not, the core value propositions associated with centralizing in cities hasn't gone away.

I flew into Vancouver this morning, which means it was only a matter of time before the topic of house prices came up.

According to the 13th Annual Demographia International Housing Affordability Survey (2017), the 10 most unaffordable housing markets are as follows:

1. Hong Kong, China
   

2. Sydney, Australia
   

3. Vancouver, Canada
   

4. Auckland, New Zealand
   

5. San Jose, California
   

6. Melbourne, Australia
   

7. Honolulu, Hawaii
   

8. Los Angeles, California
   

9. San Francisco, California
   

10. Bournemouth, UK
    

The survey measured the affordability of “middle-income” housing in Australia, Canada, China (Hong Kong), Ireland, Japan, New Zealand, Singapore, the United Kingdom, and the United States. 

It is based on a “median multiple” approach, which tries to normalize house prices across the world by looking at median house prices over median household incomes.

The above list probably won’t surprise you, as well as the report’s focus on land supply. But I did want to call attention to the following remark:

My own housing research focused on this difference: Why did Germany (and similarly Switzerland) provide housing stability where much of the Anglosphere did not? 

In a nutshell, the answer to this question has a lot to do with the way councils are funded. In jurisdictions where local decision-makers stand to gain from new development, they will be much more eager to make it happen.

The topic of incentives is not something that is often focused on when we talk about land supply. But it’s a really interesting point. Because the reality is that, in many cases, the incentives probably work in the opposite direction to the one described above.

What happens when wages and real estate prices become too high in a city? Companies start growing in lower cost locations. We’ve all seen this before. 

Fred Wilson recently blogged about this “spillover effect”, citing a New York Times article talking about the growth of tech offices in Phoenix. As someone who sits on the board of many technology companies, he was noticing a thematic trend:

“A big theme of board meetings I’ve been in over the past year is the crazy high cost of talent in the big tech centers (SF, NYC, LA, Boston, Seattle) and the need to grow headcount in lower cost locations.”

We talk a lot about housing prices on this blog, and so I think it’s useful to see how this, along with high wages, also impacts companies. The two are interrelated.

Below is a chart from the NY Times article showing the US cities with the highest number of technology jobs and the most growth from 2010 to 2015. 

San Francisco is in a league of its own. But overall, the growth is in tech and many cities are adding lots of technology jobs. Look at Detroit and Boston right beside each other (Detroit obviously has a smaller starting base). And look at how Miami is nowhere to be found.

Of course, one interesting question is whether these new outposts – such as Phoenix – can truly come into their own and carve out a niche:

“We don’t want to be San Francisco’s back office — we need more creators here,” said Scott Salkin, a founder and the chief executive of Allbound, which is based in Phoenix, makes sales software and has offices down the hall from Gainsight’s.

Even with the high cost of living, it’s hard to supplant the coastal hegemony. That’s where people go to chase riches. As comedian Daniel Tosh likes to say, “the middle of the country is for people who gave up on their dreams.”

Though for some, living in a place like Denver or Salt Lake City and snowboarding every weekend is a better outcome than living in a studio apartment and commuting an hour to work.