How will boom of tech IPO's affect Bay Area real estate?
May 8, 2019
Tech initial public offerings like Lyft, Pinterest, Uber, Zoom, Slack and more are all about California with nearly all of them headquartered in the San Francisco Bay Area, which is among the least-affordable areas in the nation. Many early employees of these companies are going to make a lot of money on their stock options.
As reported on Marketplace.org, with the median home price being $830,000, it may affect the wealth going to housing prices. Host Molly Wood spoke with Glenn Kelman, CEO of Redfin, a real estate company that offers brokerage services and data, about what type of data he has about what's coming. The following is an edited transcript of their conversation.
Glenn Kelman: Redfin agents are working with some of these people who are borrowing money against stock that's still locked up to be able to purchase that house. We're beginning to see lenders say, "Even if you can't sell the stock because you have to wait six months after an IPO, we're willing to loan you the money because we think that bet is going to pay off." Those are a few of the numbers we look at. If you look at when Facebook, Twitter and LinkedIn went public some years ago, take the normal price appreciation and add nearly three points to it. Home prices are not going to double in one year, but it is still a significant effect.
Molly Wood: Obviously, this is not normal. It's kind of a combination of the number of companies concentrated in one area, the valuations and the way these companies pay their employees.
Kelman: Normally you wouldn't see so many companies go public all in one place. I believe the way most economists look at housing is they measure its affordability by looking at the ratio of the home price to wages, but that has been unhinged in the Bay Area. It doesn't matter what your salary is, you're using your stock to buy a house, and that stock is shooting through the roof.
Wood: It sounds like normally if there were a bunch of tech IPOs, there would be a sort of sense of euphoria maybe among real estate agents in San Francisco, let's say. But it sounds like you're saying that may not be the case here.
Kelman: Yes, I think that stockbrokers and jewelers and people who sell expensive cars are very excited about this, but real estate agents feel maybe a sense of dread, that the bidding wars we've become accustomed to are going to go to a whole new level. The reason that's so is because you can make more jewels and cars, but houses, there are only a limited number of single-family homes in San Francisco. People are commuting two hours to teach at a school, to perform some other middle-class job, and we're not building the housing to let those people live near where they work.
Wood: Forgive me if this sounds a little bit like wishful thinking as a renter in the Bay Area, but to what extent is this cyclical? Will San Francisco or even Oakland eventually have to become more affordable by default?
Kelman: The laws of supply and demand are already at work. That's why people are renting U-Hauls and driving to Oregon. I do think that at some point, when houses get too expensive, price increases will ameliorate. I think in some ways, whenever there's a huge tech rally, you always have some curmudgeon saying, "Wow, that bubble is going to burst." I think some of the people who are advocates for affordable housing, for middle-class housing, are leading the charge this time. I don't know if I want to characterize myself as a curmudgeon, but I left San Francisco to run Redfin 14 years ago, and I always planned to come back. One of my kids the other day said, "If we ever came back, do you think we could afford it?" I don't know, man. I don't know. If I'm worried about it, everybody else must be, too.
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