I spent the last week helping pack and unpack for a family as they moved to their new digs. I’ll start with the house porn since the new place was magnificently staged by real estate professionals. Then I’ll work backwards to tell this story.
The new house is four stories tall and was last used as a three family building – a two story primary home, a legal attic rental apartment, and an “informal” (illegal) garden level rental.
Okay. You get the picture. It’s a nice house. And it’s big. The family that just bought it purchased it in a completely vacant condition so whoever was renting the two apartments were persuaded to leave before the sale. Empty buildings sell for a serious premium compared to those offered with protected rent controlled tenants. I have no knowledge of the particulars in this case, but the most common arrangement is for the seller to pay old tenants to leave voluntarily. That money is readily regained after the sale. I have several friends who were long time renters who were each paid $100,000 to leave desirable properties. That’s not enough for a down payment on anything here in San Francisco, but it allows people to start over elsewhere if they have a good plan. The pay outs are faster and cheaper than litigation and eviction and an extra couple hundred thousand dollars is a rounding error given the sale price.
The stove was immediately removed from the attic apartment. Without it the attic is merely a collection of extra rooms. Why rent? The legal dynamics make being a landlord in San Francisco extremely unpleasant. Rental income isn’t the primary concern for a family that can afford this sort of house. The basement was never legally rentable anyway so it’s now a storage space. The house is merely reverting to what it was when it was originally built – a comfortable single family home.
A little backstory here. This building is in a part of the city that was prosperous in the late 1800s. It declined in various bank panics and depressions nearly a century ago. Then it saw grand homes carved up into apartments and rooming houses during the housing shortage and rationing of World War II. A precipitous decline in property values hit the area in the 1950s as the middle class decanted to suburbia. White people didn’t want to live here. Rents were very low. This was the inner city. Dirty hippies. Drugs. “Negros and Orientals” as one elderly resident once described the populace. A neighborhood in decline. Then gays. And a plague. As recently as the early 1990s many of these buildings were forlorn and undesirable. The exorbitant property values we see today are relatively recent. In the fullness of time this may prove to be temporary. It’s all part of the long slow pendulum of history.
So what’s become of this family’s old flat? The one they moved out of… Three bedrooms, two baths, a formal dining room, wood burning fireplace, eat-in kitchen, comfortable living room, a generous back deck overlooking the shared garden, and off street parking in the garage. It’s in a super desirable location too. They aren’t selling it. At least not right away. They don’t need to. But they aren’t renting it either. They don’t need the money and they don’t want the hassle. They have family and friends who come often enough that it’s a convenient spot to put guests. Meanwhile, they wait for the right moment to sell.
The old apartment is sandwiched between buildings on either side that are getting full gut renovations. Long term tenants and long term owners alike are migrating away for a variety of reasons. A carrot. And a stick. The city is changing. For better. And worse. Depends on who you happen to be. Once these two neighboring buildings are done this spring they’ll sell at what might be the very top of a long boom market. The “comps” will jack up the value of all properties on the block. That’s probably going to be a good time to cash out, rather than the jackhammer and nail gun cacophony currently underway. So long as the financial markets hold up a bit longer…
Right about now a certain segment of my dear readers are probably thinking some pretty uncharitable thoughts about the new winners in our current economy. The elites. The 1%. Crony Capitalists. You might have some salty views about West Coast culture to spice up your interpretation of events. Limousine Liberals. The Technorati. So let me offer this view for whatever it might be worth.
My friend who just bought the beautiful big house is from a plain vanilla middle class family. Her parents were immigrants. She herself wasn’t born in the States, but was brought over as a child and eventually became a legal naturalized citizen. And she went to a state college, not an exclusive private university. She bought her first piece-of-crap two bedroom apartment in a bad neighborhood outside the city at the tender age of 25 straight out of school. She couldn’t possibly afford it on her own so she chipped in with two room mates to buy the place collectively. They each had to pull together $15,000 toward the downpayment which was a serious stretch for them at the time. Those were the lean years of eating ramen.
Meanwhile she worked her ass off at a little start up that paid her a nothing special wage with the promise that if the company succeeded and went public she’d get a pay out in the form of stock options. That was during the first Dot Com boom of the 1990s. The company did well initially and she took a risk by selling off her stock. (The company went bust soon thereafter in the tech crash of 2000 and no longer exists.) That stock didn’t deliver instant internet riches. It was just enough money to push her over the top and enable her to buy her own two bedroom apartment in a sketchy neighborhood in the city. The apartment needed work and the mortgage was a stretch. She took on a room mate to save money.
She took a position at another tech start up. Worked her ass off some more. Saved. Went to graduate school to boost her skills and credentials. Worked at yet another tech start up. A little more stock money came in – not tons, but enough. She upgraded to the three bedroom flat. It seemed like a financial stretch at the time, but she took on room mates to make it work. In part she was lucky. Right place. Right time. But she was also smart and bold and industrious. Notice all the stretching she did. It could all have gone the other way for her. But she earned everything she achieved fair and square. I watched it happen in real time for the past twenty odd years.
A couple of years ago she finally reached a point in her life where she was ready to get married. The right guy came along and they merged their resources. That pushed them up into the new big house.
In a previous era she would have languished. She might have been a school teacher, a librarian, or a nurse. Those were the professional options available to women in earlier generations. I’m sure she would have been amazing at any of them.
Until the early 1980s and the Reagan Revolution the tax structure and financial markets wouldn’t have delivered the kinds of wealth building dynamics that made her personal trajectory possible. Those were exactly the same national policies that dismantled much of the old middle class and shifted wealth to a select portion of the population over the last four decades. I remember the so-called Reagan Democrats in the Midwest who switched political parties reaching for Morning in America©™. Open borders. Free trade. Deregulation. Innovation. Tax cuts on capital gains. Financial liberalization. Welfare reform. Bush I, Clinton, Bush II, and Obama continued those policies despite the cosmetic rhetoric of touchy feely identity politics. Those factory workers in Ohio had no idea what they were getting themselves into.