Owning a Home in San Francisco

There’s been lots of articles in the paper recently about owning a home being a bad thing. I was always scratching my head about this until I realized I’m one of the few people left that was born and raised in San Francisco and is STILL HERE. Most of the people you’ll find in San Francisco are lucky to have lived here for twenty years at most, so it’s time I gave you a little history lesson about San Francisco real estate.

Now for most people here they don’t remember the time when a house was affordable because they aren’t, well, old like me. I was born in 1962 and my parents had bought their four bedroom house in the Sunset in 1954 for a whopping $18,300. Yes, you saw that right, there isn’t a couple of extra zeros on that number. The builders, McKewan Construction were asking $23,500 and my parents underbid the asking price and got it. The early 50’s was a buyer’s market.

My parents never thought of selling the house and moving on. It was a home to them and you didn’t sell it every couple of years to turn a profit only to move into a bigger home that you’d again turn and sell at a profit a few years later again.

My Grandmother was always the business savvy one in the family and she consulted her lawyer who worked out a deal that because I was living in the house when I turned 18 that I could have my name added on the the title as an owner so that when everyone was gone there would be no inheritance. Smart move and if you have kids you should think about doing this. There’s nothing illegal about it and it gives your kids a pretty priceless place to live in California what with Prop 13 and all that.

Now housing prices rose a bit over the years, but it wasn’t until around the late 80’s that the prices started to soar. In the 70’s you could get the same house for around $50,000. That’s pretty much close to the cost of a Lexus today with add ons and closing costs. Somewhere around the mid 80’s the prices started to skyrocket. When my wife and I got married you could get a two bedroom for around $215,000 out in the Sunset. I know, we were looking into the idea at the time. Our first landlord got a two bedroom house with a 1 bedroom cottage house in 1994 for $205,000. It wasn’t a fixer upper either.

Prices kept going up and right before the dot bomb of 2000 my Mom’s best friend who was in real estate told us we could easily get $1.5 million for this house. Great, we were millionaire, but still trying to struggle to pay the bills. I remember having to write the check for my Mom for the property tax that year and it was $650. We were paying twice that for our two bedroom house we were renting at the time.

My friends from High School, the few that stayed around and ended up in a similar situation to myself are all doing pretty good. I’m happy for them. We had parents that thought ahead. Others can’t fathom this and the fact that the people writing for the Chronicle and Examiner never take this into account shows that they aren’t either. Probably because they weren’t born and raised here. There are lots of people who want to do away with Prop 13 so that the state can get more money from home owners, but I’m not going to stand with that group. I plan on dying in this home, probably not literally, but I want to pass this house on to our daughter when we go.

I used to hate the crotchety old guys who would sit out in front of their houses in a lounge chair watering their lawns talking about why, I remember back when we… fill in the snide comment of your choice. I want to be that guy when I’m in my 70’s. I guess it’s all because I’m a Sunset redneck at heart and I want to be around to remind people about that.

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21 Replies to “Owning a Home in San Francisco”

  1. Eric – as you obviously know, your grandmother was brilliant; my dad passed away last November, leaving the house to his 4 kids and 5 grandkids; as administrator of the trust, I have learned quite a bit about SF property/inheritance, etc… and that was a dead f-ing brillinat move she made. My nieces’ and nephews’ portion of the house will be reassessed, and nothing to be done about it… I’m so glad you’ve the insight from her, and your daughter, and hopefully her kids, etc… will continue to outsmart the system…YES!

  2. Yep my Grandma was a smart cookie even if her theosophist aunts thought she was marrying outside her station. They had nothing left to give their families and I got me a f*cking 4 bedroom with a gorgeous backyard [thanks Dad!] in San Francisco.

  3. My grandparents purchased our home for my parents, 791 33d Ave, at about the time I was born (1962) also. I was told it cost them $33k. I believe we sold it for about $75k in 1978 when we moved to LA. Do you think it was Chinese immigration (and all their $$) that caused the housing in SF to skyrocket?

  4. That could have had something to do with it. I do remember the general complaint around the first wave of price increases was because Chinese were getting 1% loans from Hong Kong banks. Things were still “relatively cheap” in the 90’s when you could find 2 bedrooms for about $200-$220k out here in the Sunset. When the dot com boom started is when the houses really skyrocketed.

  5.  This story seems to illustrate the housing situation of the Bay Area perfectly. If you’re a boomer or older then you just so happened to have been born early enough to actually afford to buy a home in the Bay Area. All others who came afterward… good luck.  I am in my early 30’s and moved here 12 years ago. I started making $8 an hour and have since worked my way up the ladder to the point where I’m making well into a six figure income. Yet even now after the bust, home prices are still ridiculously high. In any other part of the country I would be doing quite well- Well meaning we could afford a modest home, out money into our retirement funds, and maybe buy a nice used car every once in awhile. We rent a decent home and all around us are older people, many of whom had or have ordinary middle and sometimes even working class jobs. There is absolutely no way any of them could ever afford to buy the houses they live in with their current incomes. Buying their homes means you’d probably need to be pulling in $200,000 a year or more.

     I think you see where I’m coming from. The cost of housing in the Bay Area is a major problem that will ultimately have a generational effect. There was a recent story I heard on the radio that mentioned that the population of California is aging. One of the main factors was because younger families-particularly those with children- are moving to more affordable states. In turn a lot of the older residents who remain who’ve already raised their kids refuse to pay extra for services they no longer need- aka- schools, public infrastructure, etc. At the same time not a snip is mentioned about Prop 13, a law that for all practical purposes degrades the overall collectible tax base and only grows more severe as the population ages.

     The attitude that seems to come from older residents seems to be that well- they already got their little piece of paradise- but nobody else should even think of building another house on their block. All is fine and dandy as long as nothing even changes. They got in and who really cares about the rest of us? Thus the supply of housing stays stagnate- which is precisely why almost all of the homes in the Bay Area are now 60-70+ years old. Its also why you’ll have to cough up $500k+ for a “starter” home.

     Either way I gave up on the idea of buying a home here years ago. We’re saving our money and someday we will be packing bags for one of those states people in my age group are now flocking to- aka- TX, NC, GA, and CO etc etc. I wonder what the future holds for the Bay Area when all of the future talent eventually moves out leaving mainly older residents behind.

  6. Bob, I feel for you. I was just lucky is all I can say and that’s what I was trying to say. My wife and I started putting away money for a house when we first got married and houses were around $200-$250k like I mentioned in the article. We could never do it.

    Prop 13’s main point when it came into effect was that it gave aging home owners a chance to stay in their homes because they were retiring and living on fixed incomes and if their yearly property tax increased they would be forced out because they were, “old and in the way.”

    California may be getting older, but the Sunset and Richmond districts used to have homes that were sold to white families only and you see plenty of Asian home owners out here now that weren’t able to get in on the ground floor. Many people sold their homes and moved to other parts of the Bay Area when the bussing started in the 70’s. They missed out on the ground floor as well. They got their houses cheaper, but still not at the deals they first did.

  7. If you believe that keeping old folks in their homes was the purpose of Prop 13, you are a complete dupe. The purpose was the cheap ownership of commercial property. Ask yourself why Prop 13 applies to all property, not just residential, and you’ll have the real answer. People like you and your short-sighted “I got mine, Jack” attitudes are enabling the continued Brazilification of our economy. Thanks a bunch for destroying public education, which was, in case you missed it, the foundation of an equitable society.

  8. It may not have been the main purpose of Prop 13, but it was a side benefit for homeowners, it still is, but it’s just not so noticeable to people who’ve only owned a home for 10-15 years along with the fluctuations in housing prices.

  9.  The problem I have with Prop 13 is that the law is universally applied. I totally agree with you that Prop 13 was perhaps really passed for the benefit of commercial property. That said, I am not in favor of having a tax system that over time basically has less and less potential revenue simply because as the population ages and their property taxes fail to keep up with inflation the state in turn becomes increasingly broke.

     The age-old argument of saving old folks from being tossed out on the street doesn’t hold water because if you look at almost all other states, they have tax laws that kick in once a person reaches a certain age thus they get a huge reduction in their taxes- including property taxes.

     lastly, in some states that have higher property taxes- like Texas- home prices for the most part stay reasonable because those taxes create downward friction since a higher home price means higher taxes.

     Either way Prop 13 needs to be re-examined. Will it ever? I doubt it. As the state ages this possibility becomes even less so.

  10. What you may not be aware of is that California had no laws to kick in for the elderly to save them from increasing property taxes. Property taxes where higher prior to the passage of prop 13 in 1978 and because of a tax payer revolt it was enacted to bring taxes down.

    After it passed housing was still affordable until the influx of Chinese getting 1% loans from Hong Kong banks in the late 80’s. Then they started to increase and with the dot.com boom they increased exponentially.

    Commercial property was a by-product of Prop 13 and because the properties were sold between offshoots of a major shell corporation is why companies benefitted more by it.

    The main thing it caused was that it made it stupid for people to sell their homes. Now with people not staying in one place for very long it doesn’t make sense, but I like it here and I plan on staying. You won’t see any talk of a repeal of prop 13 until at least 2-3 generations have passed. It would take that long for people to forget what it saved for many.

  11.  Yes- I am aware that California had no such law prior to Prop 13 that protected the elderly from rising property taxes. My point being that as it now stands, Prop 13 universally applies to all homeowners and all commercial properties versus merely being custom tailored to those that would need it- such as the elderly- as it is in most other states. Prop 13 has basically interrupted the natural process of housing cycling from the elderly to younger generations because for one- the elderly can forever be protected by paying zilch in taxes on a home worth 10X’s what they paid. That and these houses can be grandfathered down to their children with the same ridiculously low tax rate.

     I think prop 13 is only part of the problem though. The other is that the Bay Area and most other major Cali metros are extremely NIMBYist. I mentioned in my initial response that Californians seem highly resistant to the idea of anything new. That means new highways, new trains, and new housing. Marin is a perfect example of this. Traffic going through Marin is a bottleneck because it took literally decades to build one single freeway through it. There was fierce resistance to building any freeway period. Not surprisingly the average age of Marin is one of the oldest in the Bay Area. At the same time their median home price is also the highest. The same can be said for the semi-desirable East Bay neighborhood I live in which as of now has an average age of 47. There are local laws that prohibit the building of any new homes on a lot under a certain size. I don’t recall the exact number but its way up there- to the point where doing so would be absolutely prohibitive. Basically nothing new gets built and any mention of any new housing development is met with fierce resistance. The cry goes out that doing so would “Ruin the quality of life” for those that live here. Such as the way it goes throughout the bay area and one of the main reasons small unimpressive houses are so highly regarded as precious.

    In either rehard the unique dynamic that made the Bay Area what it is- with its eclectic mix of artists, writers and thinkers has for the most part been broken by the unaffordable housing situation here and the patterns heavily set in place that ensures it will never again be affordable to ordinary middle class wage earners.

  12. San Francisco in particular hates change, but when it is forced on them they suddenly love it. The Embarcadero Freeway, The new DeYoung Museum, etc were all either necessary or an eyesore, but now they’re hallmarks of San Francisco.

    Those who bought early don’t pay zilch in property tax, just a lot lower. I pay a quarter of what a friend of mine pays for a house he purchased about 10 years ago. If you think the small unimpressive houses are expensive now you should have looked at them 12 years ago. My house would have sold for twice what it is worth right now and I was trying to get my mother to sell it so we could get a huge house + guest house in Massachusetts for less than my house is worth today. MA passed a similar law to Prop 13 in 1980 [prop 2 1/2] and Oregon did the same in 1990 [prop 5] yet no one’s complaining there.

    You mentioned Texas as being cheap, but it’s the highest cost for utilities in the nation because everyone needs heating and air conditioning to survive there.

  13.   I actually grew up in the South so I am aware of the hot summer situation ( not to mention humidity). For those of us who know, there are many ways in which to have AC and heating and not pay an arm and a leg for it.

    1: Buy a house with high ceilings. My Aunt has a house built in 1917. Honestly she barely turns the AC on- the heat rises upwards and cool air is drawn from the basement.

    2: Buy an energy efficient AC unit. My parents bought a new AC system 5 years ago. It uses a high efficiency scroll compressor. Even if the thing stays on 24/7 their cooling bill is seldom more than $120. That’s about $50 more than I currently pay. We’re not talking a huge difference here.

    3: Install an attic fan. We always turned the AC off at night and turned on the attic fan which would draw cool night air from outside.

    4: surround your house with trees. They say each tree has the same effective cooling properties as a single window AC unit.

     Anyway, these are things you can do there. What you can’t do in California is avoid higher income taxes, higher car registration fees, higher gas prices, higher home prices, higher rent prices and everything else that’s way off the scale compared to the rest of the US. Let me put it this way: My parents- both of whom are solidly middle class- combined make half of what I make. They own a 1970’s 2 story 2,000 square foot rancher on 14 acres of land with an in-ground pool, a greenhouse, a workshop, an apple orchard, a chunk of wooded area with a stream and 2 newer cars. The total value of the property currently sits at $169,000. Compared to here that would get you nothing. Maybe a foreclosure in the worst part of the area. Perhaps this is why I see such a dramatic delta. Its that its not just expensive here, but ridiculously so. Living here has given me a new sense of appreciation for where I came from.

     It’ll be interesting to see what will happen here. I get a feeling that just like all other events that track their lives, boomers will probably want to sell their homes-all at once and the market will get flooded. Perhaps that will have an effect on local Bay Area prices.

     In the end this area has been good to me. I’ve learned a lot of things, met people from all over the world, have had a good career and gotten a new perspective. But the cost of living here is simply too high.

     Thanks for having a civil discussion.

  14. I think another part of the problem is that we’re locked in on three sides with no room to expand unless we build an army and start taking over the peninsula. That still won’t keep prices down much.

    I curious where your parents live and what kind of services are available to them. I know people in the city that have never owned a car because they don’t need to, but I have friends in Sacramento that need a car just to get to a store.

    There are other places in California that are more affordable like Jackson, CA that I talk about often, but you’ve got to drive 50 miles to get to a department store. Now with internet purchasing so easy that’s not as necessary.

    I don’t have a problem posting comments by people who don’t agree with me. I think I should because it strikes up a discussion that opens me up to seeing the other side of the coin.

  15. The main take aways from this story are:

     

    a.) owning a house is great, especially if you inherit one
    from your parents

    b.) exploiting a legal loophole so that you pay barely any
    taxes on your free house is awesome

    c.) Prop 13, the deeply flawed tax system that enabled me to
    escape paying taxes, is also pretty cool. No complaints from me!

    d.) If you just ‘work’ and ‘save’ but you can’t get in on
    free housing – then it sucks to be you in SF.  I guess your unlucky.

    d.) I want my kid to learn the value of blind luck too!

     

    This smug piece of idiocy perfectly exemplifies the
    ‘something for nothing’ ethic of the baby boomers.  To them, the American Dream comes in the form of a free
    lunch.

     

    Prop 13 creates large market distortions, which hurt far
    more people than are helped by it. The people most injured are rarely
    considered, because they are the young families who can’t get into the housing
    market due to the higher costs this unfair tax structure ask them to
    shoulder.  Instead, he chalks up
    the problems of people who are artificially kept out of the housing market to
    bad luck. 

     

    Here’s a news flash. 
    The current value of your home is fictional.  It’s being propped up by our governments recent, and many
    interventions into the housing market (e.g. the Fed setting negative real
    interest rates, QE1 and 2, TARP, and of course, the raising of the conforming
    loan limits in high income areas). 

     

    However in order for the government to prop up the value of
    your free house, they must in the process necessarily create massive inflation.

    In other words, your savings and your future dole money
    (social security) will become worth much less than they are today.   Pennies on the dollar if I’m
    right. Those high gas and food prices are just a preview of what’s coming as a
    result of these policies.

     

    So despite your heartfelt love of the free lunch – somebody
    always has to pick up the tab.  In
    the end, I suspect it may be you.

     

     

  16. From your line of attack and I’ll classify it as an attack from the tone, you’re essentially exhibiting jealousy at my family’s find sense of financial planning for the future.

    In order to bring home prices down significantly you would have to repeal prop 13. In doing so and lowering the prices which would cause people to buy, yet people who currently are turning over houses would not want to sell at a loss, so they would have their homes reappraised to lower their taxes continually to reap a benefit over their initial investment loss and stay in their homes longer.

    Prop 13 affects home buyers today, but as I said in the article, you need to stay in that home for more than 5-10 years before you’ll see a noticeable benefit. Most home buyers I have seen today never stay in their home until it’s paid off. They usually turn the house for a profit and move up until their ready to retire then they turn the house and move into a smaller place so they have extra money for their retirement.

    Does this make sense to you now?

  17. You start your article by arguing that home ownership is a good deal.  You then use your own experience as evidence for why home ownership is so great.   

    However, you didn’t actually BUY your house, which I think even you would agree, makes your experience slightly different than most.  In addition, you’ve used a loophole in our flawed tax laws to avoid paying fair taxes on your home.  You even admit in your piece that Prop 13 was intended to help seniors.  You’re not a senior…. 

    So your story is like someone who wins the lotto, then starts telling people that it’s a good idea to win the lotto.   I have zero problems with you wining money in a casino, or for that matter, inheritance.  I just don’t equate getting lucky with merit and hard work.  

    Where I do have a problem is laws like Prop 13 – where our government creates an uneven playing field in the market price of homes.  The state gov. forces new homebuyers to subsidize the taxes of previous, long-standing homeowners.   

    To a reasonable person – this is unfair. It jacks the price of a house for new buyers.  It enables weak financial players to hold on to property that they otherwise couldn’t afford to keep. For example – would your current income support you living in a million-plus dollar home if you had to pay for it (like most people)? 

    To argue that it takes 5 or 10 years for new homebuyers to benefit from Prop 13 is also disingenuous, because many people simply won’t buy homes that they otherwise might have if the prices had not been artificially distorted higher.  Your parents might have not people been able to buy that house you live it if Prop 13 were in place back then.   The people you express fake sympathy towards who have six figure incomes and can’t buy homes are those very people being hurt by this crazy law. 

    Also, if prop 13 were repealed – prices would fall as you concede. Whether this process is a good thing for people who paid higher home prices is irrelevant. No one guarantees that when you buy a house, or a stock, a car, or a bond that you must make a profit when it comes time to sell it. (*you should make a profit by smart buying decisions – not government intervention). without prop 13 the home market would normalize overtime and more people would be in affordable homes that are currently.  In a market-based economy, that’s what counts. 

    The current federal government policies toward home prices are unsustainable regardless, although getting rid of Prop 13 would be helpful.  Now that the bubble in housing is pricked – home values are going down – both in nominal terms and in real value.  If you don’t believe me – check out the latest Case Shiller numbers.  Then check out out the dollar index to see how much value it has lost over the last 2 years (*remember – your home is priced in dollars.  Hence, it loses real value when the currency does)

    The fact that the SF market is still levitating higher than average doesn’t really matter either.  On the first wave down of the NASDAQ crash, the worst stocks got killed.  Eventually, the entire tech market got hit hard and great stocks like Oracle, Cisco and Microsoft ended up being dead money for over a decade.  You could argue those companies had better fundamentals, which is true.  Much like the SF bay homes have better fundamentals.  It didn’t matter for those companies in the end– they were part of the tech bubble.

    The same is now happening with real estate, only the situation is worse because the government is trying to prop up our home values.  In the end, the market will have it’s way.  This means home prices will go back to the historical mean over time – which is about 2 times the yearly average salary, or 3x the average salary in CA due to prop 13.  

    Lastly, what you are hearing in tone is not jealousy.  It amazement, paired with disgust, that we have gotten to a point in this country where people are proud of something as dubious as gaming the tax system.  I also think there is a strange sense of entitlement in the boomer generation that, when expressed in public policy, is ultimately damaging this country.

  18. I’d like to change my previous comment. Prices might fall if Prop 13 were repealed. San Francisco today is the place everyone wants to live. That increases demand so that if people did sell their homes when Prop 13 was repealed it would only mean that only people of more wealth would be able to afford houses here since while the price might drop the yearly property tax might increase.

    You seem to be blaming Prop 13 for everything which shows that you are not a property owner so you don’t know how things work here. Property tax is incredibly low here and that has nothing to do with Prop 13. It has to do with the fact that you have to pay 1.1%/year tax on your home. My home was purchased in 1954, yet a much larger, three story home with more sq. ft. than mine that was last sold in 1999 pays less than twice what I pay per year. That has nothing to do with Prop 13, but the problem lies with the tax base. In New York Upstate I have a friend with a house about the same size as mine with more land and he has to pay 16x what I have to pay. His house is worth about half what mine is. The reason has nothing to do with Prop 13, but with the tax base set by the state.

    If you are complaining about the cost of housing might I suggest you move down to Los Angeles where you can get a nice two bedroom for around $110k or further out east from there were you can get large homes for even less. This isn’t about Prop 13 or California, it’s because San Francisco is a much more desirable place than most other places in California.

    Might I also suggest a copy of Strunk & White’s the Elements of Style to help with your grammar and composition.

  19. Clearly Prop 13 is not the only reason home prices are overvalued.  U.S. home prices in general are still too high. That’s why we are seeing continued declines in the national homes prices: 

    Case-Shiller home-price index hits new low

    http://tinyurl.com/4y3fhzk

    05/31/2011

    The San Francisco numbers show a year-over-year decline of 5.1%.  That’s surprising given that ‘everyone wants to live here’ as you say.

    Anyway, here’s a summary of my position…in case you want to address what I’m actually saying:
     

    a.)   Prop 13 creates unfair distortions in the housing market.  This is a bad thing in general, regardless of how popular it is with the people who currently benefit from it.

    b.)   The Housing Bubble has not finished crashing and the US market is still overvalued. This reality will be expressed over time in the form of much lower home prices.  This is true nationally and it’s also true in San Francisco. 

    c.)   The US government response to the collapse of the bubble has created bigger problems in the economy.  We can expect higher structural unemployment and severe inflation moving forward.

     

    There is also an underlying cultural shift that helped inflate the bubble.   The shift can be felt in the acceptance of the idea that we deserve something for nothing by merit of being American.  How else can you describe the notion that you can get rich just by buying a house in the right place, and remodeling the kitchen or putting in a pool. 

     

    This whole mess is pretty sad, especially when you measure the wreckage in human lives.  Perhaps if you could get past your narrow self-interest for a moment, you might see the bigger picture. 

  20. First you’re attacking San Francisco, then Prop 13, then you’re moving on to the nation. Now you’re attacking anyone who buys a home because they can, “get rich” by doing so. Who’s paying the bills? The government certainly isn’t.

    Further more, I’m getting tired of having to edit your comments to make them more readable. If you don’t edit your comments before posting, I won’t be approving them. I’ve given you plenty of leeway with your rant so far, but it’s just becoming meaningless now.

  21. Is it an attack to point out that home prices in SF are falling?  Or that U.S. home prices nationally are falling?   Is it really an attack to point out that Prop 13 is unfair?

    We can agree on this: 

    You believe in home ownership.  It has been a good deal for you. Most people agree with your perspective.  

    On the other hand, I’m skeptical of the majority opinion when it comes to financial matters. 

    So let’s agree to disagree. 

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