Living the Dream: What It Costs to Live in San Francisco

San Francisco, without doubt, is one of the greatest city in the world. It is a top vacation destination spot and one of the best cities in the world to live. If you are in technology, there is, arguably, no better place (outside of living down the Peninsula if you work there). The tech boom has created great opportunities, high wages, and a lot of fun. It is perhaps the top restaurant city in the world.

The cost, literally, of this boom, is higher prices. In step with this technology boom, is a real estate boom (perhaps coupled with a regressive city housing policy), driving housing and rental prices very high. And, in general, the cost of living is quite high.

This begs a practical question: What does it cost to live in San Francisco? And, there is the follow up question, Is it "affordable?" If you are new graduate contemplating moving here, I hope the answers provide some insight into whether you want to live here.

Let's do some simple math.

TL;DR; -- If you are a software engineer, it's close. If you are careful about entertainment expenses, you can live here!

Assume you are a software engineer. And single. You want to take advantage of all the City has to offer you. According to Glass Door, the average salary for a software engineer is about $125,000/year in San Francisco.

I've done a little spreadsheet work to created a hypothetical situation for what it take to live in San Francisco. Of course, YMMV.

Some observations the income side:

• I assume you will save money and do so efficiently, namely through a tax deferred 401(k) plan that hopefully your employer provides. 
• I also assume you don't have other streams of income (trust funds, parental support, investments, etc.).
• It might be surprising -- your total tax rate is over 39%.

Note that, on the expense side, I reflect what I consider a "single" lifestyle. If you are married and/or have kids, this calculation is waaayyy off.  Some observations on expenses:

• If rent is $2,500, I'm guessing you might have a roommate. 
• Entertainment expenses dominate -- all in. I calculate this is about $2400/month. 
• Owning a car is a big swing. $400/month probably underestimates owning a car and possibly overestimates an Uber/Getaround habit without a car.
• Dating relationships can change expenses dramatically -- especially in terms of rental and entertainment expenses. Do you pay 100% for your partner? Or does your partner(s :-)) pay for you? This calculation assumes you pay your own way.
• I've left off a bunch of other miscellaneous things, such as media (NetFlix, books, online subscriptions), household expenses/creature comforts, automobile, electronics. Could this be another $500/month? 
• There is no line item for savings -- except through your 401(k) plan.

Conclusion

If you back off a little on a big social life, don't own a car, and don't have to support anyone else, it's doable! Barely. And pray those stock options pay off.

Rent vs. Buy? (In San Francisco)

In seemingly lock-step with the technology boom in San Francisco is the real estate boom. As we argue whether or not we are in "bubble" or not (for both tech and real estate), those moving to and living in the city make gut wrenching decisions -- should I buy or should I rent? (Or on the flip side, should I sell? There is a whole 'nuther calculus here that is different than the opposite of the rent vs. buy decision -- but that is for another blog post).

The simple conclusion? It's still slightly better to rent. Here's the breakdown, using a simple but real example. Of course, YMMV.

We consider a 3 bedroom, 2 bath, 1 parking space, 1200 sqft condominium or apartment in the Mission/Noe Valley. Looking at listings on Zillow,  these price at about $1.2 million. As a sanity check, this turns out to be about $1000/sqft. That sounds about right.

Some Assumptions

To simplify matters, we make some assumptions:

• You are able to finance the whole amount at 5%, no points, no fees, interest only
• You don't know if the property value is going up or down, so call it a wash
• You are in the 28% marginal tax bracket

The Cost to Own

• Monthly mortgage:  $1.2 million *.05/12 = $5000/month, net after taxes = $3600/month
• Taxes: $1.2 million * .011/12 = $1100/month, net after taxes = $792/month
• Insurance: $300/month
• Home owners dues: $500/month
• Maintenance: $100/month

Total: $5292/month

Renting 

Well, it seems like you can still rent a 3 bedroom 2 bath place for $5000/month. Assuming renter's insurance is $50/month, that $5050/month.

Some Caveats and Observations

• Financing the whole amount is probably unrealistic. We make this simplification to avoid the complexities of points, fees, time you stay in the home. And, we ignore the value of "infinite" leverage, opportunity costs, etc.
• We ignore the value of "flexibility" -- e.g. moving out of a rental is easier than selling.
• We ignore the value of "pride of ownership."
• We assume the appreciation/depreciation is 0. If we compare the price of real estate at the peak of the last boom (2000), this hypothetical property was about $900,000. At $1,200,000 today, that's less than an increase of 2% year. For a huge (perceived) real estate boom, this seems small.
• Rents over the past 15 years have probably doubled. So, increase in rent seems to have outpaced appreciation of property values.
• The parking place might be a $200/month "swing" for renters. For some parking matters, others not.
• Rent control in San Francisco probably reduces the anxiety for renters worrying about large year to year increases in rent.

Conclusion

If your rent is less than around $6000, then it seems reasonable to rent. You might sleep easier at night. Regardless of how high rents are or how fast property values are appreciating.

The biggest surprise is that property values really haven't gone up much (for condos) since the last boom.