[_fat_santa]

The way I see it, you have these tech companies that are writing larger and larger checks to their employees. Combine that with limited housing and you start getting bidding wars from folks making $500k, all of a sudden that house that went for $600k is now going for $1.2M. If you work back from that price you see that the prices would not have been able to go that high had all these tech companies not offered massive comp packages.

[mywittyname]

That's not artificial though, that's fair market pricing. It's growth in income leading to higher prices for goods purchased with that income.

[SllX]

That is true and I’m not here to disagree, but what the parent pointed out raised a question for me: weren’t these salary increases in part due to the fact that since the 2008 Financial crisis, money has been cheap, and now with the Feds raising rates, money is now more expensive? And if so, and those salaries were not sustainable because the profits that allowed for them hypothetically cannot be sustained because people are out of work and tightening their belts or taking salary cuts to land their next job and taking out a loan to cover payroll for businesses is a more costly proposition, then isn’t this actually a volatile situation for the Bay Area housing market and the mortgages backing it?

[rbranson]

More important than LIRP influence is that Bay Area tech companies were incredibly successful in the decade at increasing revenues, so they could afford to pay more.

Apple: $65.2B in 2010 vs $260B in 2019 Facebook: $1.97B in 2010 vs $70.9B in 2019 Netflix: $1.67B in 2010 vs $20B in 2019 Google: $29.3B in 2010 vs $160B in 2019

[SllX]

You make an excellent point and I had to sit down and think about this more holistically because I’m just trying to understand what is going on in the economy right now and using this comment chain as a lens to try and do it in. So what I came up with is that is true but more context is necessary I think: payroll isn’t the only cost they increased. M&A was also huge this past decade: Apple bought Beats for $3B, Intel’s modem business for $1B and between 2010 and 2022 they had at least 14 other acquisitions for >$100M and this is excluding the financing and equipment purchases for their suppliers including TSMC and that weird deal they had with the PRC to invest $275B into mainland China.

Facebook’s 4 largest purchases in the last decade were WhatsApp for $19B, Oculus VR for $2B, Instagram for $1B and Kustomer for $1B along with at least 5 other acquisitions for >$100M.

I don’t want to go down the whole list in detail, but Google has invested heavily into YouTube, Waymo and other bets this past decade and Netflix was up until very recently just pouring money into Hollywood and other media markets like Japan to acquire production and/or distribution rights and built up pretty much their entire streaming infrastructure in the post-2008 world. All of this was an also financed with cheap money and these investments allowed them to grow their revenue, maybe some more successfully than others.

None of that is really artificial inflation, but I guess this is why dollar inflation is called inflation?

[Apocryphon]

What about all of the startups whose profits are over the horizon?

[kokanee]

I think that when people describe these kinds of markets as "artificially" inflated, they're reacting to the sharp increase in income inequality. For a person who has had a 60-80th percentile income for 20 years, it probably feels more like prices are artificial than it feels like their economic status has declined significantly. Unfortunately the latter is the case, as increasingly fewer people gather an increasing share of wealth.

I would definitely agree that the pricing is not artificial, but I don't think I would call it fair.

[bregma]

It's inflation. Now it's leaked out into the general economy as a result. Same thing happens when you inflate a tire: it makes it nice a hard until it goes boom.